This comes from Tim Draper‘s article at Communications of the ACM. If you don’t know, Tim Draper is the founder of Draper Fisher Jurveston (DFJ), one of the most influential VC funds. Draper was also an investor in Hotmail, and created “viral marketing” as a tool for signing up beta users. The man is a legend, basically. I’ve had the chance to be in the audience for one of his speeches, and I loved it. He was funny, savvy, controversial, and very personable. Plus, he plays guitar and wears tacky ties.

Draper’s article is all about how now is the perfect time to be an entrepreneur. I couldn’t agree more! Frankly, I think we’re in the kind of trouble that stimulus and government spending can’t get us out of. And forget about big corporate. If they’ve got deep enough pockets, they’ll take the turtle approach… tuck in to their shell, don’t take risks, and hope to weather the storm. Who can really get us back on track? The entrepreneurs!

Is there evidence to support the claim that a recession is a good time to be an entrepreneur? Sure! GE, IBM, Microsoft, Shell Oil, AT&T, Merck, J&J, Sun, Skype, Kodak, Polaroid, HP, and Adobe…. all companies started during an economic downturn! What is it about starting during a recession that is a blessing in disguise? Draper says the following:

1. Managers think more creatively during a recession because circumstances force them to. They question old assumptions, look for new ways to cut costs, and explore new directions. If things are crazy outside, they look inside for ways to keep the financials healthy… and that spurs innovation!
2. Frugality becomes a long-lasting culture for the company. People work for less and cost-savings is encouraged. The bottom line is paramount because the company is in a battle to stay alive! Do you really need the fancy ergonomic desk? Not if it comes at the expense of losing your job.
3. Big companies, via management and boards of directors, are shortsighted during recessions. They cut product development, R&D, and “nonessential” spending. What happens? It leaves the world of development and innovation ripe for outsiders! (Author’s note: Frankly, if they’re doing their jobs they should have anticipated the conditions and been ready for it.)
4. Economic recessions decrease “venture fratricide.” What is venture fratricide? It’s when a company gets funded by institutional money at the seed and development stage, only to find out 9 months later that 20 other funds funded 20 other companies to attack the same market. What happens? You’ve got lots of new entry into an unstable and learning market. Enormous amounts of money are spent trying to gain marginal market share. End game, lots of money is loss.
5. Moore’s Law does not slow down for the economy! Ideas and innovation don’t care about the economy. They occur when smart people try to tackle big problems (author’s note: pay attention… smart people, not person… big problem, not small nuisance).