When is the Right Time to Start a Business?

TNEPoor Caterina Fake unleashed quite a firestorm by proclaiming, somewhat flippantly, that this was not a good time to start a business — though she later qualified it to starting “consumer-facing Web 2.0 companies in [Northern California]”. One of the protesters was David Heinemeier of 37Signals, who said it’s always a good time to start a business if you do it right.

They are, of course, both correct. If your plan is to get rich quick with a copycat idea by attracting millions in venture capital, it’s never a good time, especially now that VCs are wearying of the unrealized promise of many online businesses to attract real customer dollars. Caterina, presumably, made a reasonably small fortune developing and selling Flickr to Yahoo. But she started with a need, not a clever idea, and she nurtured it for years until it was clear to all that Flickr met that need. Even then, it was a strategic acquisition for Yahoo, rather than a cash cow, just as Skype was a strategic acquisition for eBay. And while both Flickr and Skype were original, met a need in a unique way, and achieved enormous popularity virally before they were acquired, it is far from certain that either had a sure-fire business model i.e. was destined to be sustainably profitable as an operating business. Much of what made both products so popular, after all, was that they were (and are) free.

I’ve spoken before about how and when to start a new business, and the graphic at right resummarizes my perspective on what you need to have, what you need to know, and how to go about it. But I thought I would offer a succinct answer to the question that a lot of people ask, which is When is the Right Time to Start a Business?

My answer is when you can answer ‘yes’ to all of the following questions:

  1. I’ve identified a real need no one else is meeting effectively, and I know why no one else is meeting it effectively.
  2. I’ve identified a team of people who (a) collectively have the skills and knowledge needed, without a lot of overlap, to bring this product or service to fruition, (b) believe passionately in the project to bring this need to market, (c) really like each other, and (d) know what they’re getting into and have reasonable expectations of the journey they’re about to undertake.
  3. The whole team are competent and continuous innovators, improvisers, and learners.

That’s it. No mention of venture capital (the new name for ‘lenders of last resort’). No mention of marketing plans or detailed business plans with ten-year financial projections. No mention of luck. No mention even of deep networks (though they certainly help).

The most successful (on their own terms) businesses I know, some of which have been going for generations, all have these three qualities going for them, and I know of nothing else they all have in common (except perhaps that most of their principals have either failed or come close to failing in a past enterprise). Walk into companies like this, talk to a few people at random, and you can tell, almost immediately, if they have these qualities. You can smell it.

Walk into most companies and they reek of self-doubt, or of tedium, of internal friction and loathing, of risk-aversion and dread, of inflexibility, or false arrogance, or imaginative poverty.

I’m not saying that you can’t succeed, for awhile at least, with some cute copycat web or software idea that will attract brief fame, long enough to catch the eye of a big company who sees strategic advantage in buying it rather than copying it, and paying you enough to retire comfortably. But, as David says, if this is your approach you might as well pick up a Powerball ticket while you’re at it.

The three qualities above are exceptional, and not at all easy to come by. I know people who have been striving for them for a lifetime, quietly but unhappily working at some boring job at which they are overqualified and under-appreciated, but unable to find either the need or the teamthat will let them do what they really want to do.

For those that can, it’s always a good time to start a business.

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6 Responses to When is the Right Time to Start a Business?

  1. Meg says:

    I love this. Excellent points. A few start-ups could stand to read it.

  2. Dave Smith says:

    “..really like each other.” My experience is that when a business starts becoming successful, at sales of around, say, $10 million, some people in the company change. Values shift from fun, excitement, risk, lay it all on the line, to money and all its variations… internal competition heats up, good will starts losing its shine, internal politics becomes more important, and on and on. To plan for from the beginning, the original partners need to set up a legal game plan for dealing with it if it occurs between them. How to decide, what a buyout price should for a partner should be based on, etc. There will be those who will no longer be friends. It just is. OR, don’t grow and be happy.

  3. Mary Schmidt says:

    Excellent points. You know the world/economy/whatever is always a mess. If we waited until it was the “best” time to do anything (start a business or family. Move. Marry. Whatever) we’d never get anything done. As long as people realize what they’re leaping into when starting a business – it can be done and there are opportunities in even the worst situations – at least that we are likely to encounter here in the U.S. (barring total catastrophes – natural or man-made) Making (and sustaining) a successful company – of any size is hard slog and an ongoing process (including the challenge of keeping it fun and innovative.)

  4. I agree with most of what you say except for one point: Finding a group of people with complementary skills is simple enough. Getting them to be willing to take the necessary risks is an almost Herculean task ( which probably means that either my ideas are really bad or I’m not good at “telling compelling stories”. )Is it really necessary to start off with a group of cofounders? Can an individual not make a difference on his/her own ( at least initially )? After all, whenever a business begins to succeed, talented people naturally gravitate towards it.Lastly, I was wondering if you could provide some pointers to your favourite books/resources on:1) New Economy2) Complex adaptive systems.3) Research

  5. Dave Smith says:

    Hi Nicholas, I can recommend a book: Running The One Person Business, Claude Whitmyer

  6. Thanks.. I’ll order it pronto:)

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