Is 2016 a good year to launch a startup?
Launching a startup can be one of the toughest things an entrepreneur ever does. It is a leap of faith – in yourself and your concept – and it can take months, or even years, to get up the nerve to make it happen. When you do, it’s your gig and you’re in charge. While you can take control of many things in the process, there are a few important factors that are entirely out of your control, not the least of which is the economic and competitive environment in which your company exists.
In business, like in life, timing can be a difference-maker – a fact that is especially true for new tech companies. Go to market too early or too late and you may miss your moment. Often, even a month or two of delay can mean the difference between being the first mover – “the pioneer” – and not. This leaves many entrepreneurs feeling compelled to enter ‘primetime’ before their business is ready and, inevitably, challenges ensue.
In a TED Talk last year, IdeaLab founder Bill Gross discussed a study he conducted, which was aimed at determining the most important factor in the ultimate success or failure of more than 200 portfolio companies. To his surprise, he found that timing accounted for a whopping 42% of the difference between success and failure – outweighing the importance of the team and execution, the idea itself, the business model and the amount of funding.
If you’re reading the news to decide if it’s a good time for a startup today, you will realize quickly that there are plenty of challenges to consider. We see unstable financial markets both in the U.S. and across the globe, frequent reporting on the plight of the “unicorn” and overvaluation of startups, an allegedly tenuous relationship between fintech companies and major banks, and growing conservatism in the venture capital community. By all accounts, it is a complicated and crowded time for tech startups, and success is never a guarantee even under the best of economic circumstances.
Despite these uncertainties, there is one compelling fact to keep in mind: Many successful startups and iconic companies (both consumer-facing and B2B) were started during relatively unfavorable economic times – including Venmo, Braintree, Square, and even Microsoft, and GE just to name a few. So, “good timing” is not necessarily dependent upon good economic conditions. Developing a compelling product to fit a market need (that the world is ready for) is the more important ingredient for success. In fact, one could make a strong argument in favor of launching a startup in the midst of difficult economic conditions. A recent study cited in The Telegraph found that firms launched during the financial crisis actually outperformed their peers over the course of a 12-month period. Among the group of 3,500 American and European companies evaluated in the study, those that started in 2007 and 2008 reported a more significant increase in profits than pre-recession startups.
It may seem counterintuitive, but there are a number of reasons why starting a business in the midst of unfavorable economic conditions can actually be a good thing. An interesting article from Forbes suggests that downturns often create an environment in which consumers want to save money, incumbents are vulnerable, talent is more readily available, resources are cheaper, and startups may have better negotiating power.
It is easy to understand why many entrepreneurs see the availability of venture funding as a key factor in determining the timing of a launch. I have met many entrepreneurs-in-the-making looking for the “perfect” confluence of fundraising, economic and market conditions before taking the plunge. Unfortunately, for a lot of them, that perfect moment never comes. This is not to say that the fundraising environment is not important, but I suggest viewing it as one element in a long, multi-year journey towards building a business of consequence.
So is 2016 a good year to launch a startup? It’s as good a year as any if you can figure out what the market is asking for today. It’s as good a year as any if your idea excites you and keeps you up at night. It’s as good a year as any if you can attract a small team that is equally passionate about your vision. And it might just be a better year than others if you can take advantage of all the benefits that come along with launching a startup during uncertain economic times.