The notion that a downturn in the economy is a wonderful time to start a new business has become an adorable cliche. However, the growing number of examples of successful businesses that took off during a recession implies that this theory has some validity.
I experienced it directly in 2008, when I was a member of Eventbrite’s founding team. Financial discipline and strategic concentration guided the fledgling company through the Great Recession and onto a path of hyper-growth and eventual IPO.
Companies like Uber, Slack, Venmo, Square, WhatsApp, and Cloudera were still “in diapers” at the time. If there is a recession playbook for startups to learn from these examples, it isn’t only to cut expenses, conserve cash, and emphasize profitability. The important point, in my opinion, is that a downturn is usually a catalyst for massive change that can fast generate completely new markets as well as reshape current ones.
During a recession, massive, fast changes create an enormous potential for entrepreneurship.
Today, as the IT sector braces for the “Recession of 2022,” it’s clear to me that the opportunity for entrepreneurs this time is excitingly different from the last recession. One difference is that the potential for change feels much greater this time around because of how the prior two years have prepared us for change. We’ve seen a cultural “values shift,” and we now demand completely different things.
The other distinction is that, while many new benefits have been created for all entrepreneurs, some really powerful benefits are now available that will directly effect entrepreneurs.
Why is today an excellent moment to create an impact startup?
Reason #1: Impact investors are ecstatic.
It is not an exaggeration to state that organizations that do not have a clear commitment to good effect will have a difficult time accessing funding in a few years, and this is not limited to startups. Investors and the capital markets will hold companies of all sizes to greater behavioral standards. Last May, SEC Chairman Gary Gensler urged for greater clarity on rules for evaluating publicly traded companies’ ESG (environmental, social, and governance) merits.
Meanwhile, the amount of capital flowing into “impact funds” is increasing. The impact-investing market rose 42% between 2019 and 2020, and Citi pledged a $1 trillion commitment to sustainable finance by 2030. This means that significantly more money will be set aside for early-stage investments that promise to have a good impact. It will be a game changer for founders who can explain an impact thesis alongside their company plan.
Long before the epidemic, there was growing recognition that positive effect and profitability are no longer mutually exclusive. Evidence suggests that purpose-driven brands have a distinct advantage over the competition.
According to a Porter Novelli survey, purpose-driven businesses are more likely to inspire trust, recall, and loyalty in their customers, with 71% responding that if cost and quality were similar, they would buy from a purpose-driven company over an alternative. Other evidence suggests that impact-driven businesses have higher retention rates.
Companies that do good will triumph because they will attract more capital and customers than their competitors. The factors that combine positive impact and commercial success to provide unmatched advantages for early-stage enterprises are also becoming more recognized. Investor confidence in this approach is expanding, and there is a growing desire for assets that match these criteria.
My advise to today’s entrepreneurs is to invest in this asset class. Be deliberate. Be inventive. Now world is far from ideal, and this is your chance to take use of it. We face enormous challenges, ranging from the climate crisis to global injustice and inequality. Now is the time for the most audacious visions and business models that are fully aligned with good effect.
Reason #2: Today’s talent seeks a higher calling.
The aforementioned value shift has also altered the hiring and retention landscape. Employees are no longer restricted geographically; they now have more options and opportunities. And it’s not just about making more money. It entails gravitating toward companies that act in accordance with their human values.
Create and launch a socially responsible startup.
When you develop an impact-driven startup and open your doors to all the world’s impact-motivated talent, amazing things can happen. Entrepreneurs who pursue this will find themselves suddenly with access to significant funding that is increasingly being reserved specifically for impact ventures, as well as a global talent pool.
It ultimately comes down to the notion that businesses that do good will do better.