Why A Bad Economy Is Good for Entrepreneurs
Life + Money

Why A Bad Economy Is Good for Entrepreneurs


It defies fiscal common sense — but a bad economy is often a terrific time to start a company. Consider this: Nearly 60 percent of Fortune 500 companies began business in a bear market, according to a recent report from the Kauffman Foundation. "Proctor & Gamble survived the panic of 1837, then the worst recession in our young nation's history, while General Electric came out of the economic chaos of 1872 and Hewlett Packard was born in the Great Depression," says Adam L. Penenberg in Tech Crunch.

With today's tremendous challenges for new businesses, The Fiscal Times spoke with Bill Murphy, Jr., author of a new book, The Intelligent Entrepreneur (Henry Holt, $27.50). Murphy shares tips and insights for the aspiring entrepreneur and profiles three graduates of Harvard Business School who went on to make millions from their ideas and who are doing quite well, even in today's climate. Their passion, planning, commitment and entrepreneurial mindset — plus their ability to attract investors to their cause — are what sets them apart.

In 2003, Marc Cenedella founded TheLadders.com, the world's leading online marketplace for executive level jobs. Chris Michel founded two companies, including www.miltary.com, now the country's largest military membership organization (in 2004 it was acquired by Monster). And Marla Beck started Bluemercury, Inc., which sells luxury beauty products.

The Fiscal Times (TFT): As impressive as these people are, could any of them have started their businesses today, in an economy with flat job growth, persistent unemployment, cautious investors and tight credit?

Bill Murphy, Jr. (BMJr): I don't want to sound too Pollyannish, but they'd be better prepared to start now, because of the tight economy.

TFT: How so?

BMJr: People generally think that what holds them back is a lack of money. But the tough economy actually weeds out those who don't have the stomach for new ventures. If there's a lot of money out there, it's easier for anyone to get into the game — it's how we got into the 'get-big-fast' mentality.

But when money is tighter, the truly committed entrepreneurs with a great idea are able to leverage the resources they have — time and people — to demonstrate what they can do. They also have less competition. There are fewer people writing checks, but there are also far fewer people asking for checks. There's actually a lot of benefit to starting something in hard times.

TFT: Of course there's also the satisfaction of watching one's creation take off — and it's usually the new businesses, the small businesses, that provide most of the new jobs.

BMJr: Yes. Marc Cenedella's company, The Ladders, employs about 200 people today, and Marla Beck's company, bluemercury, has about 300 employees. Chris Michel is in a different category because he sold military.com for $39 million to Monster in 2004. And it's still running really well, with annual revenue that's about six or seven times that now. But while there's great personal satisfaction in working for yourself, making the big sale, reeling in the big customer, and developing the product and so on, you need a deep reservoir of commitment to be an entrepreneur, almost more than the commitment to your idea itself.

TFT: Let's talk about the costs of starting a new business, which can give more than a few people pause.

BMJr: It's so much cheaper now. Things that would have cost $1 million, $2 million just five years ago can be put together for $50,000 to 60,000 or less. For example, a colleague of mine started a business-to-business internet company in 1999. To get the word out about it required a marketing campaign and 50,000 direct mail pieces back then. All that adds up. Today, you're on Facebook and Twitter, and with a few well-placed social media dollars you've got a core of people. I don't want to oversimplify, but anything that is computer-based is far cheaper now.

TFT: Obviously a track record of success is important in order to take things to the next level — and that includes financing.

It's very compelling to people. The American dream once was, own your own home. Now it's, be your own boss.

BMJr: The days of going in with a Powerpoint presentation and walking out with $5 million dollars are over. But if you can show that you've gone from A to B, and B to C, and that now you're asking for money to help get to D, that can be pretty compelling. Investors are looking for that kind of positive return.

TFT: What's so attractive about entrepreneurship, anyway? For many people, there's far too much risk involved. What's so attractive about entrepreneurship, anyway? For many people, there's far too much risk involved.

BMJr: We celebrate entrepreneurs, everybody from Bill Gates to Mark Zuckerberg. They're rock stars. But there's so little good education for this. We may have technical experts or subject-matter exerts, but we rarely tell those people, 'Great, now let's show you how to address a calculable market.' People need basic questions answered. I don't think we've done a fantastic job of that.

TFT: What's your solution to that problem?

BMJr: We need to train people specifically between the college years and the mid-career professional years. That's the sweet spot. And yes, I believe entrepreneurs are made, not born. Frankly I think it's a crime that we don't introduce this kind of thing into the core curriculum in high school or at least college.

TFT: You're talking about the kind of training that many big corporations once offered their professionals. Some still exist, but a lot of these programs were cut during the recession.

BMJr: Well, companies might reconsider that and say, 'Maybe we should invest in our people. Let's help them move beyond just building products, and toward building solutions that are scalable.'

TFT: You've created '10 rules for entrepreneurship' [below]. Did you consider including overcoming failure? Many people in today's economy need to know how to handle that.

BMJr: I think persistence means redefining failure. I've asked a lot of entrepreneurs to tell me about their failures, because the answers are very interesting. To me the best answers are, "I fell flat on my face and failed, which forced me to look at something differently. And when I pursued that opportunity, I truly turned things around." Being lucky is great. But luck is not a plan.

THE 10 RULES OF SUCCESSFUL ENTREPRENEURSHIP by Bill Murphy, Jr., from The Intelligent Entrepreneur:
1. Make the commitment.
2. Find a problem, then solve it.
3. Think big, think new, think again.
4. You can't do it alone.
5. You must do it alone.
6. Manage risk.
7. Learn to lead.
8. Learn to sell.
9. Persist, persevere, prevail.
10. Play the game for life.

From the book THE INTELLIGENT ENTREPRENEUR: How Three Harvard School Business School Graduates Learned the 10 Rules of Successful Entrepreneurship by Bill Murphy, Jr., published this month by Henry Holt and Company, LLC. Copyright © 2010 by Bill Murphy Jr. All rights reserved.