These past few months I have been talking to several business owners and entrepreneurs who are extremely scared about the crisis and recession. We tend to dramatize the good and the bad. Not so long ago the markets were soaring to the sky and many were mentioning that the value of bitcoin for example was going to reach 1 million dollars. The same people who considered themselves gurus and millionaires because they were making money now think they are fools. While it is true that with good weather and a fair wind we are all good sailors, the reality is not so dramatic. Jamie Dimon, the CEO of JP Morgan Chase has a definition of a crisis as something that happens every 7 years and in most markets we are going on 13 this time. The economy is cyclical and that also helps a renewal.
The problems are real, inflation is real, unemployment may rise, but it doesn’t have to be bad for everything and everyone. This moment can be good especially for those who have liquidity.
Entrepreneurs have a tough time raising capital, for example. But at the same time there seems to be a correlation between companies that start in times of crisis and the likelihood of success. This is the case for Microsoft, Airbnb, Uber, and WhatsApp. Why?
Adversity can create more cohesive teams and a stronger company culture. Fewer resources mean having to be more creative in solutions and having more efficient structures that when the economy recovers have great results.
In an economy at almost full employment, the shortage of human resources in technology has been dramatic. Staff turnover and sky-high salaries have made life difficult for smaller companies that in a downturn can attract more and better talent at more affordable costs. Perhaps not so pleasant for many digital nomads or fans of the 4-day week. Many companies are coming to realize that remote work is not as productive, but they had to offer the option to be attractive to employees. With this new situation it is likely that many will have to return to the office. I know this statement is not very popular, but it is shared by many companies in silence. The millennial generation and beyond have not experienced any crisis either, and there is an eye-opener that can be tough but educational at a time when they have to compete more and more globally with labor markets like China and India that are well educated and willing to work longer hours.
Another advantage is the cost of digital marketing, a success factor for many new businesses. As this is one of the first cuttings of many companies and the price of this type of advertising is set at auction, the values will tend to decrease and may have a better return on investment.
More established companies also have the advantage that if they have the capacity they may have great opportunities to buy other businesses and expand.
Regarding raising capital for start-ups, there is still a lot of money available in venture capital funds that have been raised in recent years, only that investments will be more selective. Still companies with good business models and good teams will be able to continue to raise.
It’s not easy, but it’s not the end of the world. When I did an 11-day meditation retreat this year, Vipassana, something we were told over and over again is “this too shall pass”, don’t focus too much on the pain or the pleasure, everything passes. And so it is, this crisis too shall pass and when the good weather comes, enjoy it, and take it with humility too.