By Matt Cohen
In the midst of turbulent times, companies go back to the drawing board and have the chance to reflect and reevaluate their business. Some fear the current state of the market and the dreadful downturn, but some see it as an opportunity to see their company’s full potential and evaluate their strengths and weaknesses with brutal honesty.
Difficult times necessitate resilience. But they allow founders to learn valuable lessons that can drive lifelong wisdom. Adversity calls for growth, adaptability and strength in order to come out on top.
Capital was too available
Before the downturn, capital was highly accessible for founders. During this unsustainable economic boom, investors didn’t hesitate to throw their money at the next company they thought might be successful. When capital is too available, it leaves an unrealistic expectation to founders that capital is easy to obtain and outcomes are even easier to achieve. However, this is not the case today as we exit out of an economic boom and enter the start of a recession.
The idea that capital is always going to be available whenever needed created a sense of artificial coddling. However, building a startup as a founder in this current environment invokes perspective and insight on how to handle difficult situations appropriately and efficiently.
There is a specific mindset that is needed in order to demonstrate prosperity during times of crisis, when capital is especially scarce. Unlike investors with experience in various market cycles over the years, first-time fund managers like myself come in with a clean slate. The same goes for first-time startup founders who can’t be as risky with investor capital and jeopardize their money when they may never get another shot at the game.
This makes them more aware of the decisions they make and the consequences they face on every business decision. They know they have to make thought-out, insightful decisions, and maybe even muster a path to profitability in order to attract capital in this market climate.
Timing is everything
Many people believe a market downturn is the worst time to invest and therefore an unwise time to be an entrepreneur and start a business. However, some of the greatest, most successful companies of our lifetime were founded during the 2008 recession. Airbnb was one of the many startups that ascended from the recession. During SXSW in 2008, it launched its homestay rental concept. In 2022, Airbnb went public with a valuation of more than $100 billion.
Venmo was also founded amidst the housing crisis in 2009, eventually coming out on top with PayPal buying the company years later for $800 million. Uber, Slack and WhatsApp are some of the many other businesses founded and minted as household names during the downturn. These companies proved that not only is starting a business during a recession possible, but many of their founders would go on to say that the adversity they faced made them come out of the fire stronger.
Learning from adversity
In an industry of scarcity and limited capital, adversity forces people to utilize all the resources they have at hand efficiently and wisely. To overcome financial struggles, they create a variety of strong social networks that allow them to reach out for help when needed—especially for things beyond capital.
Founders that have the fear of failure on their mind at all times but refuse to quit will end up being the most resilient and successful because they are dedicated to their mission far more than the money. Companies that fight to win the battle for funding during this downturn will undoubtedly come out as the leaders of the next generation.
Overall, adversity creates perseverance and strength, and allows founders to better handle challenging business situations. Capital too easily obtained creates a sense of carelessness in the industry, with a lack of thoughtful decisions.
This dynamic always ends badly. Startup founders have no choice but to adapt to the current climate of the market and be more cautious, smart and ruthless. Being a founder during the chaos and unpredictability of a recession can be tough, but it instills valuable lessons and muscle development that they will take far past the end of the downturn … and hopefully to IPO one day.
Matt Cohen, founder and managing partner at Ripple Ventures, was founding investor of Turnstyle Solutions, which was acquired by Yelp in 2017. He is a frequent contributor to Crunchbase News, having written about why more VCs are becoming startup founders and other topics.
Illustration: Dom Guzman
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