As recession mania spreads, lots of folks have weighed in with their recommendations. Sequoia says to hunker down and start firing people. Dave McClure says that when the going gets tough, the tough get going.
All fine and dandy if you're interested in reinforcing your natural optimism or pessimism. But all of these posts focus on generic advice on how to deal with a recession. Where's the specific advice on who's truly fucked, and how to profit from others' misfortunes?
Glad you asked, loyal reader, because here is my list of recession winners and losers. I think you know which one you want to be.
Ever wonder how on earth there can be so many friggin' conferences? Wonder no more--they're fucked.
In 6 months, no one will even remember the difference between DEMO50Expo or SocialWebSummit. I feel bad about this one, since a couple of my friends make their money this way, but hey, I gotta call it like I see it.
When a company wants to cut costs, is its first instinct to fire its employees, or its faceless consultants? Yeah, thought so.
Though I do expect "Independent Consultant" to see a big uptick in popularity as a LinkedIn job title.
3. Advertising-driven Companies
The very first thing that CFOs will look to cut after they institute a hiring freeze is the advertising budget. In good times, CEOs love branding and awareness. In bad times, advertising is just another expense that those bastards in Marketing are using to bankrupt the company.
Oh, and the argument that ad dollars will flow to online advertising because it's measurable? True, but a falling tide strands all boats. When overall ad spending gets whacked, don't expect online to be any different.
4. Angel-funded Companies
I love angel investors. I am an angel investor. But guess what, when times are tough, and a startup needs $1 million to stay afloat, those voicemails that you leave on the angel's answering machine are going to go unanswered.
You see, VCs have to invest, or their LPs beat the crap out of them. As an angel investor, I can take my ball and go home any time I want.
5. First-time Entrepreneurs/First-time VCs
During the boom, lots of people get jumped up above the rank they deserve. Hell, I was one of those guys back during the Dot Com era. It was fun while it lasted. But when a recession comes,
the folks with deep pockets turn to people with experience.
"This changes everything/This time it's different" sounds great when the stock market is surging, but is your death warrant when it's plummeting.
On the plus side, you'll have some cool failure stories to tell when the next boom gets underway!
6. Anyone Looking For Money
Good luck finding it. As I mentioned yesterday, my VC buddies have stopped asking me, "What good deals have you seen?" and have started asking me, "Can you give some advice to my portfolio company?" (Noted exception: Jeff Clavier is still making investments)
Similarly, if you're raising a VC fund, good luck. The folks at RRE Ventures and their awesomely named "Five Years Too Late" blog have a great explanation of venture economics and LP psychology. Here's the short version: "They're fucked."
Experienced entrepreneurs and VCs will still be able to get money, but if you don't fall into that category, I suggest getting very realistic about your options, and fast (see #5 above).
WinnersBut hey, it's not all doom and gloom. While a recession makes times tough for almost everyone, there are still ways to come out a winner.
1) Online Porn/MMOs/Virtual Worlds
When real life sucks, the alternatives start looking better and better. When you're wallet feels empty, are you going to want to go out and firehose money on dinner and drinks trying to find someone? Or are you going to pay $10/month for a sure thing? Sure enough, even as traditional DVD porn fades, online porn is kicking ass.
As for MMOs and Virtual Worlds, if your real life makes you feel like killing someone, why not spend your time in a place where that's socially acceptable behavior? And at $10/month, it's pretty much the cheapest hourly rate for entertainment available. Assuming you play 40 hours/week, that's about 6 cents an hour!
2) Low Cost Providers
If my choice is hiring someone, or paying $1.11/hour for someone in Manila to do the same work, guess who's getting my money?
I know tons of people who swear by oDesk, and I suspect their ranks are going to swell.
And if your work can be easily done by someone in a remote, low-income area (like, say, Missouri), get into a different line of work.
3) People With Cash
Simple supply and demand, bro. During a boom, capital is cheap and people are expensive. That's why you can end up paying exorbitant salaries to low-grade performers--it's simply the market rate. That's also why VCs end up overpaying for deals.
But as Salvor Hardin would say, it's a poor blaster that doesn't point both ways. We are now entering a period in which people are cheap and capital is expensive. And if you've got ready cash, you now have god-like powers.
There's a reason why my company has seen a ridiculous surge in job applications.
And if you don't have cash? Remember to stock up before the next downturn. Sorry, but you already missed your chance this time around.
The corollary of people being cheap is that it's a great time to bootstrap. If you can bootstrap (either because you can live on air, or because your business is profitable on Day 1), this will be a golden age. You'll be able to find great employees, and you'll be able to grow your business without the threat of 50 venture-backed copycats springing up overnight.
If you've got the stones to go this route, now is the time. Bootstrapping is a losing strategy during a boom, but *the* winning strategy during a bust.
There's going to be a lot of companies going under, which means we'll need vultures. Sure, being a carrion-eater isn't exactly glamorous, but it can be lucrative.
Whether you're liquidating entire companies, or simply buying stuff on the cheap and then re-selling it on Craigslist and eBay, this is your time.
But beware...a bust is essentially a Bizarro-boom for liquidators. Don't make the same mistake as your food source. DoveBid was riding high during the last bust, but ended up going under and being taken over by the British. Don't let this happen to you!
YouNow you know the winners and losers of the upcoming recession. The rest is up to you.
And if you have a bootstrapped online porn company/liquidator that uses aggressive offshoring to reduce costs, drop me a line. I'd be interested in investing.