It takes guts to be a founder. And it often entails a blend of audacity, vision and stamina to set out and proverbially “create something out of nothing”.
It may take even more specific faith to launch during a downturn. Amidst pervasive uncertainty, which can sometimes border on unhidden gloom, one needs a strong ‹sense of self-confidence to take risks, against what appears to most to be very challenging odds.
However, paradoxically, many unbelievably successful companies were founded during downturns. Whether recently (Google took off amidst the explosion of the first Internet bubble, Uber and Facebook rose to worldwide hegemony during the 2007 subprimes) or in relatively more ancient times (Microsoft launching during the first oil crisis in 1973, General Motors opening business in 1908 in the middle of a financial panic in the US), there are many examples of diamonds coming out of the rough when global economy was at its worse.
What makes founding a company during a downturn different? What are the opportunities & challenges to navigate through? We asked Adrien Ledoux, who founded Jobteaser (a company he’s still CEO of) in 2008, and Nicolas Cohen (co-founder at Ankorstore), who started ALittleMarket during the same major recession, for their thoughts and insights on this matter.
Company ideas initiated before the downturn…
Was the idea behind your company related to the downturn?
Adrien Ledoux: No – we actually had the idea before the downturn. While working as strategy consultants, we kept seeing young graduates joining a consulting firm, only to discover as they were learning the ropes of the job that this wasn’t a job they wanted to pursue.
As this kept happening, we felt that there was something wrong with how students were getting career orientation counseling. Friends who had graduated with us and pursued other jobs were encountering similar problems, and we felt strongly motivated to address this pain, and have a real impact in solving it.
Nicolas Cohen: ALittleMarket was already a side project when the financial crisis started, something that we were working on at night, on weekends, and during our holidays, parallel to our regular jobs.
The initial results as the crisis deepened helped us decide that we wanted to go at it full-time, without taking the crisis into consideration, and without focusing on the comfort our jobs and contracts would afford us.
… that both ended up being somewhat positively impacted by the global economic context
NC: We were lucky at the start, in a sense. ALittleMarket’s idea was to enable people to sell handcrafted products they had created themselves, products that usually were at a reasonable price.
It wasn’t intentional of course, but to some extent, the downturn encouraged both sides of our marketplace:
- On the selling side, more people were looking for additional ways to make money, or were launching their handcraft activity following a layoff. This ended up being a good timing for us, as it helped us with recruiting sellers
- On the buying side, the products offered on ALittleMarket were more affordable, and were a great substitute for people who wanted to offer gift that were less expensive, and compensated by being more original and unique
Also, the political climate in France at the time was promoting entrepreneurial spirit – we subtly leveraged this from a PR / media standpoint to generate awareness and goodwill, by emphasizing on how ALittleMarket enabled to promote solidarity and locally-crafted goods.
AL: This could have had dire consequences for Jobteaser, as the downturn pretty much froze all recruitments and dramatically slowed down investments.
But we were lucky enough that our concept was different: we were not “another recruitment website”. At the time, our offering centered around employer branding, and enabled companies, through a dedicated page, to showcase themselves and keep a solid level of visibility to potential hires, despite frozen job openings.
This set us apart, and enabled us not to be too severely impacted by the downturn – it actually helped us in a weird way.
Downturn-generated opportunities? Not necessarily a lot for early-stage companies
NC: I don’t feel like the crisis opened up any specific opportunities for us, besides the lucky timing [see above]. From a financing perspective, we followed what was then a fairly classic path: we started with our own funds, raised a bit of money through Business Angels about 6 months after we became full-time entrepreneurs. That enabled us to continue to grow and paved the way for our first funding round about a year later. We didn’t see any impact on how VCs considered us, nor on the size of funding rounds.
From an HR / hiring perspective, if there was a silver lining from the crisis, such as an afflux of high-quality profiles looking for new opportunities, we weren’t in a position to benefit from it. We had just recently started our activity, and couldn’t afford to be overly selective at the time.
AL: Same thing for us & Jobteaser from an HR perspective: we could only afford people with limited experience, and wouldn’t have been able to attract veterans who’d have lost their jobs.
From a financing standpoint, we started off of our own savings, and were fortunate to rapidly sell our product to a few accounts. This led us to rapid profitability, which we reinvested into our growth.
Taking the jump: “It’s not like you were missing out on terrific job opportunities elsewhere – there were none!”
NC: What helped us take the jump was also the fact that during a downturn, there are substantially less opportunities for career mobility. It’s not like you were missing out on terrific opportunities elsewhere – there were none! I certainly didn’t think that I was missing out on my dream job, rather the opposite.
Keeping a personal safety net if things go wrong…
In what professional context were you when you launched your company during the 2007-2010 downturn?
NC: The company I was working for experienced significant difficulties related to the downturn. This led to an important restructuring plan, and they ended up offering me a job that I wasn’t very interested in.
As a result, I decided to leave the company as part of the layoffs they were planning: this enabled me to collect a legal severance package, and to benefit from unemployment allowance for 18 months.
While the allowance represented a decrease in my monthly salary, the severance package compensated somewhat, and this enabled me to focus 100% on the launch of the company with a clear timeline in mind.
AL: My co-founder and I had met as consultants at Bain Company, and we both left in March 2008, just as the downturn was beginning to really hit. Things were going fairly well for us at Bain, but we were really intrigued by this idea we had, and wanted to give it a fair shot.
We decided to first take a sabbatical: this enabled us to test the idea we had, but also left us with a safety net, in case things didn’t pan out as hoped. Worse case, we could come back to our jobs after one year.
We had a little bit of money aside which kept us afloat for a few months, but we didn’t pay ourselves during the sabbatical, so I had to move back with my parents. As we were 26, didn’t have kids and weren’t married, we felt we weren’t jeopardizing our personal lives too much, and it was a “sacrifice” we had to make if we wanted to give our project a chance.
… and taking a step-by-step approach to personal sacrifices
NC: We both had turned 30 when we went full-time into ALittleMarket, and were both married. In this situation, the financial side of things is fundamental: you cannot serenely start a business if you already know that it will negatively affect your family or your couple, and you can’t impose prolonged paucity to your loved ones.
The way I approached it was to set regular checkpoints that I shared with my wife: about every 6 months, we’d sit down and assess the situation, and decide whether I’d stop or go on. This lasted up until our Seed round, when the added runway meant that checkpoints could start to be further apart.
Conclusion: downturns & launching a company: far from impossible, can be favorable, requires a (more) calm & rationale approach
Not to paraphrase Game of Thrones’ Peter Baelish, but chaos can indeed be a ladder – that is, with a good dose of luck, clairvoyance, adaptability and composure.
Because an economic downturn means fewer job opportunities, this makes it a moment where taking to jump to entrepreneurship becomes a smaller risk: there are no opportunities you’re missing out on by becoming an entrepreneur, so why not make the move now?
However, the safety net you might want when shifting to entrepreneurship regardless of the economic conditions, becomes more critical as you set out. Downturns are less favorable moments to get friends & family money that you’ll need to survive & thrive in the very early stages, and if things don’t go out as planned, there might be fewer job openings then – make sure that you plan your personal finances comprehensively, and that you set yourself regular checkpoints to assess & adjust if needed.
From a company-building perspective, companies actually launched during a downturn are generally too small to benefit from “external opportunities” such as recruitment, M&A or financing opportunities. They can, however, benefit from changes in consumer behavior and leverage those changes to find their niche, or benefit from increased consumer awareness.
In any case, if you’re considering launching your startup and see opportunities where others see uncertain times, feel free to reach out, and we’ll be happy to discuss these topics in depth with you!