business, economics, start-ups, technology, venture capital

Upside of the Downturn

“Get busy living, or get busy dying.” – Andy Dufresne, The Shawshank Redemption

There has been a great deal of doom and gloom written about the impact of the current financial crisis’ impact on start-up activity. Doubtless, there will be difficult days ahead for many companies, their employees and their investors. But there is a silver lining to this cloud. We will all fail faster.

It will be painful, but this isn’t as crazy as it sounds. Failing can be a good thing. Especially when it is done quickly and efficiently. In a previous post, I drew a parallel between evolutionary biology and product management. Looking at the current environment through the lens of evolutionary biology, we will see the time between generations narrow and newer offspring generated more quickly. Successive generations of companies will be started more quickly. In other words, the pace of start-up evolution will quicken.

In the coming years, I suspect that the many companies will be shuttered before they are ever started. The tightening angel funding environment will mean that many ideas never receive funding. These challenges will force entrepreneurs to re-evaluate and adjust their ideas. Concepts that would have been funded in a flush economy won’t be funded now. And so the talented and courageous entrepreneurs who start businesses will revisit their ideas and create newer more potent products. In doing so, they will ensure that their time, the sweat of their potential employees and the capital of their potential investors will be used more efficiently. The financial environment will hasten their evolution.

Great ideas will continue to be funded – we’re lucky, we get to see a lot of them at First Round Capital. And I suspect that the companies which receive their initial funding during the next 12-18 months will prove to be one of the strongest “classes” of businesses we have seen in some time. In this environment, only the best ideas and best teams will be funded. This is good news for everybody. If you have been thinking of becoming an entrepreneur, don’t let the headlines scare you. This is a great time to have a conversation about starting a company. Get busy living, or get busy dying. Evolution is a great co-founder.

5 thoughts on “Upside of the Downturn

  1. Pingback: Announcing: First Round Capital Office Hours (and free coffee) « the cornice

  2. Sean Brady

    A good product manager knows the importance of failing fast while minimizing cost and risk. If done as part of a disciplined iterative process, it will help you achieve stellar results and avoid mediocre, time-consuming endeavors.

  3. I’m so glad to read an investor thinking and expressing himself independently of the rest. Thanks for an inspirational post. It’s time for all the entrepreneurs to get their game faces on!

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