How are startups shaped by macro conditions at birth?

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4298934

by Bostonian • 3 years ago

82 27 3 years ago

papers.ssrn.com

Bostonian• 3 years ago

Discussed at https://marginalrevolution.com/marginalrevolution/2023/12/do... .

From the abstract: "While funding conditions cannot explain differences in outcomes, a labor market channel can: recession startups are better able to retain their founding inventors and build productive R&D teams around them."

gumby• 3 years ago

This is has been an article of faith long and extensively remarked on over many cycles: tech crashes of 83, 01, etc and financial recessions and shocks like 87, 90, 01, 07). Their list of references seem to show that this specific question hasn't been rigorously examined though, which is somewhat surprising.

Those references also show that the data are available so it's it's a shame the authors only looked at 07/08. Looks like the first author worked on this while a grad student. Perhaps they will expand it into a book.

raziel2701• 3 years ago

What I took from it is that if you're a startup that got its funding during a recession (meaning there's lots of laid-off people floating around), you get to collect very talented, skilled R&D people. Hence if that's the situation for your startup you would say that being a recession start up is great.

I think that's the specific conclusion I could get from it, the paper is very heavy and there's tons of caveats because every recession is different. But yes, if you are good/lucky enough to start a start up during a recession that has reduced labor demand, then you get to pick from a very talented pool.

Currently, I'm not sure if we had a recession last year, the labor market stayed strong despite the market correction and very public layoffs. I guess when everyone and their mother is calling for a recession it's just not going to happen? Yields are uninverting, historically I believe this is a strong signal of a coming recession, and the markets are calling for interest rates to start getting cut in March of next year. So I guess we'll see.

The other question that I found very interesting is: Do start ups born in a recession come to be because the idea and quality has to be very good? Or do they come to be because above-average confident people are the only ones willing to put their ideas out there? Or a combination of both?

bobthepanda• 3 years ago

Economists have predicted 9 out of the last 5 recessions, so the saying goes.

That being said overall market movements take a while to shake out; the mortgage bubble was first pointed out as early as 2006. People have been calling out China’s property bubble since the 2010s.

For tech at least I get the impression that the labor market out there is tough.

eropple• 3 years ago

For tech at least I get the impression that the labor market out there is tough.

Anedcotes of course, but what I hear is that maybe the Bay Area tech labor market is tough - but there's a lot of country that isn't the SFBA and nobody I know who isn't bent on working for a FAANG is having trouble finding work.

dehrmann• 3 years ago

meaning there's lots of laid-off people floating around

Also that cautious VCs saw promise with the company, so it's better people and a better business.

deadbabe• 3 years ago

The title made me think this was going to be about speculating the optimal time to birth a baby so they can be well positioned to create a successful startup by the time they reach full maturity.

hyperific• 3 years ago

Same. I'm glad I'm not the only one confused by the title. I think "birth" was the word that totally threw me off.

ttul2• 3 years ago

I started my first startup in September 2001. We got amazing people for nothing and free office space. Post-2008, my series-A failed to produce any sales because the market was simply gone. But at least I could find and retain good engineers. I would be afraid to start a company today.

xvedejas2• 3 years ago

What part of today would have you worried? My start up is having a great time finding people (amid tech layoffs) and our office space is heavily discounted due to WFH/high office vacancies. Our sales are going well also (our industry has been booming). It seems to me like a good time as any to build a company.

guestbest• 3 years ago

What’s your industry?

aetherson• 3 years ago

Yeah, this feels like a great condition to start a startup, if you can raise.

Talent is the cheapest it's been certainly in at least 10 years. The rest of the economy is going okay, so customers shouldn't be impossible to get. If you want office space, that's going great.

I don't know if anyone can raise money right now, though.

ttul2• 3 years ago

That’s great. I didn’t realize the hiring was so frosty right now. Maybe I should dust off the startup pants.

teaearlgraycold• 3 years ago

Similar story with the startup I just joined. Not hard getting talent. Rent's dirt cheap in SF.

foobarian• 3 years ago

Title made me think this would be about macro languages causing tech debt after providing quick wins in the early stages of a startup. I should know, we still have > 20 year old load-bearing m4 macros in our web build.

dun44• 3 years ago

20 year old load-bearing m4 tends to be less of a technical debt than 20 year old load-bearing Java - because it keeps working and doesn’t need constant maintenance.

xrd• 3 years ago

I keep telling myself that an incoming recession creates good conditions for my startup (vivoh.com). I guess I've internalized the idea that if you have a startup during a recession and can survive, you'll be in a great position at the end. We shall see.

But, I'm hedging my bets as well with side projects that would appeal to people in a recession , small purchase items that help them learn while they are looking for work: supernatural blogging tools svekyll.com and extrastatic.com. And a way to level up in Japanese by combining anki flashcards with Japanese classic books and learning kanji (community.public.do).

But, I'm concerned about this next year. Lots of people at my co-working space are saying this is the worst sales environment they have ever seen. It's anecdotal but it feels like that to me too.

throitallaway• 3 years ago

Our company is stripping vendors and licenses left and right.

JumpCrisscross• 3 years ago

"...we find that recession startups experience better long-term outcomes in terms of employment and sales growth (both driven by lower mortality) and future inventiveness. While funding conditions cannot explain differences in outcomes, a labor market channel can: recession startups are better able to retain their founding inventors and build productive R&D teams around them."

There is also a selection bias in the companies that do get funded, and the fact that they're coming out the door without a growth-at-all-costs culture.

yieldcrv• 3 years ago

best building occurs in bear markets, easier to focus, out of necessity

djisktrenakster• 3 years ago

This is far less an interesting question than "what startups could exist now"

My guess is this question won't return much of use, but it would return far more value than examine the "macro conditions" of failed startups (or indeed any startup condition).

How are startups shaped by macro conditions at birth?

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