Home The Great Credit Crisis Swindle – How Entrepreneurs Can Survive it

The Great Credit Crisis Swindle – How Entrepreneurs Can Survive it

Seen the headlines recently? These are scary times. Entrepreneurs are far too busy to focus on the mayhem in the markets – and they know that they cannot do anything about it. So the standard response is just to deal with it as a background worry. But some re-assessing of the external market reality can be useful at times like this. I have had lots of calls along the lines of “what the heck is going on and how does this impact the business we are working on?” This is my condensed, hopefully practical, advice to entrepreneurs.

No Politics or Investment Advice

First a bit of scope. This post is NOT about politics or what to do with your investments. Please do not comment on that, go to a site that deals with those subjects. This is about getting enough mental clarity to get back to the real job of building your business.

Second, a personal note. I came out of college in the UK in 1978 and that was a brutal downturn – there was a reason why the Sex Pistols sang “No Future!”. I arrived in America bootstrapping a business in 1991, a relatively mild downturn. I helped a Korean software firm navigate the Asian Financial Crisis in 1998. I worked through the Technology Nuclear Winter of 2002 as an entrepreneur. Been there, done that as they say!

10 Point Executive Summary

1. Nobody knows what will happen next. If anybody tells you that they know, ask him if she or he also has a bridge to sell. Look at Paulson and Bernanke. You think they know?

2. None of the historical parallels work. This is not 1929, 1933, 1977, 1987, 1991, 1998 or 2001. This is 2008. You can find some parallels from many earlier crises and downturns, but a simplistic view that it is exactly like one of the earlier periods is usually accompanied by a sales pitch for a bridge.

3. Don’t let Mr Market jerk you around. “Mr. Market” is a Warren Buffet term. He uses it to contrast the reality of a company’s earning potential with the wild swings of the market. The two are totally unconnected. Don’t go crazy trying to connect them. If you want to be a trader, understand the day to day mood swings of the market and bet on them. If you want to build a business, ignore them.

4. Avoid the obvious bomb craters. We don’t know what will happen, but we do know that it is not a good time to sell stuff to banks or to consumers in the US. You may have a really good contrarian play to sell to these problem markets, but if your plan has any shred of “business as usual” then forget about it.

5. Focus on today and the big picture, ignore the rest. Today is about the immediate stuff you have to get done to stay in business, to deliver to clients, collect cash and so on. The big picture is looking at how the world might look like 10 years from now and build towards that. We cannot know what will happen next week, month or year. This medium term view is totally unknown. However it is extremely likely that what is happening today will change the world in fundamental ways. We might see the possibility for a very valuable business in that changed world. Most of these will be trends that were visible before the Great Credit Crisis, but which become massively amplified and accelerated by the crisis.

6. The normal startup failure rate will apply again. Yes 80% of start-ups will fail. They always do and always will. This rule is occasionally suspended during highly optimistic times, such as those we have just gone through. But it is only suspended temporarily during those times. Start-up failure is normal. That is the creative destruction that makes for a dynamic economy. If it is your start-up that fails, pick yourself up and try again (or decide that you really don’t want to be an entrepreneur). If it is your competitors failing, stick with it and be the “last man standing”.

7. This not a good time for new financing or exits. As an entrepreneur, raising money and selling are the two times when Mr. Market matters to you. Valuation does matter at these times and only at these times.The reality today is that nobody will raise money or sell out, who does not need to. So any deals are likely to be fire-sales. That may be your reality, in which case get it done and move on. If you don’t have to raise money or sell, don’t spend another nanosecond thinking about it.

8. Start your most audacious venture now. This is counter intuitive but real. No VC will back a small plan. They never have in the past and won’t now. When the world changes in big and fundamental ways, big and fundamental opportunities arise. Ten years from now it will be obvious what those fundamental changes are. Great entrepreneurs spot one of those trends before it is obvious. The beauty of a big and audacious plan is the next few years won’t matter to you. Build in tough times, launch when the worst is over, exit when it is boom time again.

9. There are fewer safe havens. The natural instinct is a flight to safety, but in a severe downturn many previously safe havens may vanish. The old line “this start-up looks too risky, I think I will stick with the safety of a big old bank that’s been around for ages” has a hollow ring today. In this environment, betting on something you can actually see and understand – you, your partners and your plan – may be a lot less risky than getting onto that really safe ocean liner just before it hits an iceberg.

10. If you believed the ‘fun and easy’ myth, get out now. During the last few years, there have been many stories of apparently effortless success, with beaming young just-cashed-in entrepreneurs on the front cover. In some cases people are really lucky and luck may be on your side. But most businesses are a tough struggle followed by that “overnight sensation” period when you are suddenly “hot”. Building a business can be fun and rewarding along the way, but they are almost never easy.

One final note of optimism. Tough times create great music. In boom times, music tends towards saccharine and bland blah. Delta Blues, Punk and Motown did not come out of easy times.

Image credit: tantegert

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