Obstacles to starting a business are fewer now - Sacramento Business Journal:

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Simple, my job as a lawyer for entrepreneurial companiese brings me into daily contact with people who usually see theglasxs half-full, not half-empty. It matterse who you hang with. I see positive trends becausde I hang withpositive people. Not everyoned is hiding in bed with the blanketsd over their heads crying aboutrlost 401(k) money. It’s easy for me to be optimisticcwhile I’m talking to the next generation of companies that will rebuilc our economy. But aren’t these peopl crazy? Don’t they know they’re doomed ? Shouldn’t we protect them from themselves? Why not outlaw new companies until therecession ends?
That line of thoughtr goes against human nature. Downturns always stimulate new and tough times historicallyt have been better for startup companies than mostpeopl think. Why? First, necessity is the mother of As big companies cut theirwork laid-off workers focus on starting Some inevitably find it attractive to be their own boss and have more control over their lives. That often leads to innovative ideas theyotherwise wouldn’t have pursued. Second, opportunity cost is lowedr in downturns. In good times, company founders give up more cash flow than ineconomiv downturns. They also give up perceivee job security.
As people watch their co-workers being they often conclude job security isa myth. So why not swin for the fences by startinga company? That explain s motivation, but motivation alons doesn’t ensure success. Why start something that’s likely to fail? Most new companiews fail, whether they start in good timexs orbad times. It’s always difficult to build successfup companies. There are always unexpectef problems. However, starting during downturns provides severalkey advantages. talented people are the key tobusineses success. It’s easier to attract good peoplseduring downturns. Second, current marke t conditions are irrelevant to manynew companies.
For if a product needs research and development for a year or two beforedmarket launch, economic conditions after the produc t is developed and launched matter a lot more than economicf conditions when the companty starts. Most economic downturns last less thantwo years. new companies launched during a downturn oftenj catch the economy in an upturj when they launchtheir products. Another positive for starting duringg downturns is returnon investment. Venturer capital industry investment returns data over the past several decades confirm that venture fund ROI is highere for investments made during poor economic times than durinyboom periods.
There are several reasons for thiscounterintuitivde statistic. First, ROI depends on valuationsw only when each investment is made and at the exit As valuations usually are lower duringbad times, downturhn investors start with a substantial advantagd in the ROI game compared to boom-tims investors. If they exit at the same the downturn investor winsgreater ROI. That’s why some investors seek out down sectorws and ignore hot Whether you call them value investorsor vultures, they often producee high returns. That works fine for but what aboutcompany founders? Aren’t they hurt by low valuationws when they start companies?
In yes, but several factorz work to limit the downside for company First is investment size and Because it’s difficult to raise moneyt during downturns, most investments are small or are delayedc until the economy starts improving. Founders oftenm bootstrap through downturns. Stock marketsa generally are priced on expectedfuture earnings, not on the past. stock valuations generally start improving six months beforedeconomic recoveries. Likewise, venture investment valuations tend to bottoj out early and improve over Professional venture managers are hiredx by institutional investors to identifgy andmake investments. Staying on the sidelines too long makeseveryone nervous.
They are looking to get back into the game even thouggh they are nervous about jumping intoo Second, when money is easy to get, companies spene it faster. Downturn companies tend to be more fruga and get more bang forthe buck. Whilew investment valuation plays a role in determining how much value foundersw retainat exit, the amount of money raised is a bigger Companies that raise less because they spend less, generally provide bettetr value to founders. Third, downtur n companies often face less competition in theirearly stages. Boom-timd companies can raise capital easily, but so can theitr competitors.
Pioneers often quickly face dozens ofcopycat competitors, who raisre tens of millions to surpass the initial Downturn companies often have markets to themselves for longere periods than their boom-timew counterparts. Fourth, economic downturns often create market disruptions that weakenj established market players and afford opportunities fornew So, the bottom line is that entrepreneurs always face toughy struggles. You should think twices before you quit your day job to starta company. don’t tell your neighbor he’s crazy when you hear he’d starting a company in this recession.
He may just be your next