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The Silver Lining

artworkThe picture of economic doom and gloom has already been painted, yet entrepreneurs and entrepreneurial mentors say the forecast for certain startups couldn't be better. Here's what to consider before taking the leap. -- By Mary Tamer

When markets and housing prices are down, and the only thing rising faster than the cost of gas and food is the unemployment rate, why would anyone risk building a new business in a bad economy?

According to a number of entrepreneurs with ties to MIT and MIT Sloan, the proper question should be, “Why not?”

Albeit a more challenging time, say entrepreneurs and funders alike, we are currently in a period that is rife with opportunities for a multitude of reasons, not the least of which is the growing pool of unemployed talent created by the loss of jobs in nearly all sectors. Yes, markets are down, and angel and venture capital (VC) funding are harder to come by, due in no small part to a dearth of initial public offerings (IPOs) and fear on the part of investors who are still tallying stock market losses. Yet, while the tightening of VC funds may be a factor for larger, higher-risk ventures in need of significant startup capital, the same is not true for new companies built on innovative ideas that can run on moxie and a shoestring budget.

“When money comes easily, it goes easily,” says Erika Williams, SM '78, an interim CEO and board member of a number of Silicon Valley companies. “While it is definitely the case that it is more difficult to find venture money right now, my take is you are better off to bootstrap yourself until you can find good customers. When you have a great idea and you want to get funding … investors are going to want a big chunk of the company, and you end up with a small sliver. So you are better off building as much as you can to take the company as far as you can on your own resources.”

But, resources aside, if now isa good time, is it a good time for anyone armed with an idea and a dream?

“The economy does drive startups,” says MIT Sloan Professor Ed Roberts, SM '60, founder and chair of the MIT Entrepreneurship Center. “Still, there is no correlation between the economic conditions when you start and the later success or failure of a company. So, if you're looking for an outcome five or 10 years downstream, do it now.”

“The percentage of people who are capable of being entrepreneurs is much higher than people realize,” says Alec Dingee, SB '52, chairman and co-founder of MIT's Venture Mentoring Service (VMS). “If you've lost a job and you're hard pressed to find an alternative, the easiest thing to do is go start a company.”

As is often the case, the numbers speak for themselves. A quick review of recessionary history and the Fortune 500 points to countless examples of ventures started in tough economic times—Disney, Microsoft, Hewlett-Packard, Hyatt, Burger King, CNN, and MTV, to name just a few. These startups eventually found their way to fruition and beyond. As Alexsis de Raadt St. James, SF '01, founder and chairman of The Althea Foundation, a social venture fund based in San Francisco and London, points out, “Of the 2009 Fortune 500, half of the top 50 companies, and seven of the top 10, were founded in a recession. Now is the time.”

Should you plan to plough ahead, here's more of what the experts have to say on the secrets to entrepreneurial survival and potential success.

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