According to many studies and reports like this one from Inc. magazine, companies started during a recession (or Great Depression) have a much better chance of succeeding than businesses launched during a boom. There are three reasons:
1. Starting during a boom is like buying stock at the top of the market. Who bought Google at $400? When the market's at its peak, there's only one way for it to go in the short term, and that's down.
2. Starting up during a recession almost guarantees built-in frugality. The recession has taught everyone on the team how to survive on a shoe string, how to work a little bit harder, and how to plow profits (whatever they may be) back into the company. But starting during a boom when VC funding grows on trees teaches another lesson: how to generate an awesome burn rate.
3. This might be the most important of all. During recessions, companies tend to shed some of their best employees or offer voluntary exit packages that let their most ambitious minds take a chance on the idea the company never let them try. During booms, companies will overpay to keep talent.
This is great news if you've been laid off and you're smart, ambitious, and risk happy. It could be very bad news if you've laid off these sorts of people. They will be the new competition you never saw coming.
If you're a company that just (or is about to) cut to the bone to survive the recession, you better also plan on investing in R&D, marketing, and a new business model to survive the subsequent recovery. Here's one way:
1. Dust off the proposals your employees have given you in the past two years--the ones you thought didn't make sense. Consider launching them now before the person who proposed it uses his severance package to prove the concept sound.
2. If you think there's no money for R&D, you need to cut more and use that money for R&D. Someone will innovate during the recession when there's less concern about new business stealing resources from the skunk works project. That someone will get on the front page of the Wall Street Journal above the fold when they capture 80 percent of your domestic market with their revamped, streamlined, updated, and innovative release of whatever it is you both sell.
3. Act like you're a start-up again. Forget the fact that you control four floors of prime real estate in the most prestigious business center in the Midwest. Let 3/4 of that space sit empty, save the energy costs to heat and cool, cram all your smart people into overcrowded offices and cubes, and let them work like today's output pays for tomorrow's electricity. It does.
4. Outsource everything you're not the best at. If you have your own data center but it's not as good as IBM, Savvis, AT&T, or Rackspace, then get rid of it. If you have your own printing service but it's not as good as FedEx Kinkos, then get rid of it. The place to own the supply chain is upstream of your core business, not downstream. Anheuser-Busch owns hops farms in the US and Europe--but someone else owns the distributorships.
5. Get rid of the stupid perks that don't sell your products, but invest in useful perks that make people work smarter. iPhones might make your people more productive, or they might create a distraction that prevents your best minds from learning and thinking. Know the difference and act accordingly.
6. Invest in business process automation. If your people seem unable to follow a documented process, either automated so they have no choice or eliminate it. People are smarter than you.
In 2009 or 2010, you'll read about the new leaders of the coming boom. The faces in the article will be familiar--they'll be yours or the people you laid off last week. If you run a business or a business unit, you have the money, the experience, and the networks to stave off their competition. But if your inefficiencies and lack of innovation helped create the recession--they'll kill you in the recovery if you don't remodel yourself now.
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