There is something extraordinary that happens at the start of any recession. Companies large and small take their yearly forecasts, models, and plans and crinkle them up in their fists to toss them in the trash. It is not uncommon for people to preach when a recession is looming, but it is quite rare to know exactly when the bulls turn to bears.
For startups, the discomfort is ubiquitous. Few are spared from the dark recessionary clouds, but it is important to note that it is not all doom and gloom. For those that are facing a recession for the first time, it is important to stay focused and become more agile. Your plans may have been scrapped but the change in the economic climate can also foster new areas of opportunity.
Bear markets have proven to be great breeding grounds for innovation. Gone are the days of growth at any cost with nonsensical valuations. These poor economic climates force startups to polish their balance sheets and start making tough decisions around where they spend. Stanford economist Paul Romer once famously said, "a crisis is a terrible thing to waste" and the statement was picked up by Obama's Chief of Staff, Rahm Emanuel, during the Great Recession, as he described how a crisis can actually give you a fresh opportunity to do things you could not do before.
This is exactly how entrepreneurs need to approach the hardships of a poor economy. With your perfect plans now in the wastebasket, take a step back and with fresh eyes look for gaps in the market and adapt to a new approach that may not have previously been in the cards. Some of the most successful companies sprung out of a recession and leapfrogged their competition. Others pivoted or started in the midst of economic chaos because necessity is the mother of all innovation.
Here are six iconic companies that leaped out of terrible economic times:
In the early 1970s, the U.S. entered a 16-month recession when the GDP took its worst hit in nearly two decades. It was during these difficult times that college drop-outs Bill Gates and Paul Allen developed the concept of easy-to-use computing for homes and offices. This would eliminate some of the highest boundaries for businesses to leverage technology and pave a new path for Microsoft to become one of the most valuable companies in the world.
Apple: 1975, 2001
While Apple has been around since the 1970s, it transformed itself during the dot-com crash of the early 2000s, and in the wake of 9/11. This was during a time when Steve Jobs had returned to Apple and launched the iconic iPod. Tim Cook, Apple's former COO and current CEO, no doubt inspired by Apple's resilience during previous economic downturns, has said, "We believe in investing during downturns."
Netflix was founded in the years leading up to the dot-com bubble. It nearly succumbed to economic hardship in 2000 when it put itself up for sale, only for the $50 million offer to be rebuffed by Blockbuster. Netflix was able to weather the storm and harness its innovation and creativity prowess to transform itself into a pioneer in streaming on-demand consumer video.
Mailchimp was initially focused on large corporate clients with yearly retainers. But when the Great Recession hit, Mailchimp was forced to pivot its business model. It decided to add a freemium business in 2009, and, within a year, its user base had ballooned from 85,000 to 450,000.
In 2007, Brian Chesky and Joe Gebbia had the idea of renting out an air mattress in their San Francisco living room. Little did they know that December of that year would be the start of the Great Recession and open a door to an opportunity. Airbnb revamped the market of short-term living quarters for those who were priced out by hotels. In 2009, they received funding from top-tier VCs and experienced explosive growth.
Warby Parker: 2010
Warby Parker was founded in the middle of the Great Recession. The founders illuminated an enormous pain-point in the market--it was nearly impossible to purchase an affordable pair of fashionable glasses online. They capitalized on the opportunity of their customers' tightened purse strings and went on to grow Warby Parker into not only a thriving business but also a direct-to-consumer retail and e-commerce leader.
The companies that took risks and thrived in the toughest times should inspire greatness and remind us that with hardship comes opportunity. Not every company will be able to rise, but know that now is the time to prove not only your resilience but that you deserve to win.