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Old 18 October 2010, 07:05 PM
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Icon605 A myth about start-ups, debunked

Q: Is it true that more businesses are founded during recessions?,513829.story
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Old 31 October 2010, 07:43 PM
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Sebbenth Sebbenth is offline
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Not surprised at all.

It's very hard to get financing, in particularly - for the new business.

People have a half-baked idea that startups are something like "kids in a garage writing Google". In fact, not - this misses the entire narrative. Kids in a garage write Google. A very raw, very unpolished version of Google that is completely uncompetitive with existing search engines. Then the said kids start looking for money to dump the prototype and go for the search engine. These money are needed to pay wages, because people don't work for free. So between "kids in a garage" and "Google" there is a big fat stage when the said kids burn through tens if not hundreds of millions of somebody's money without generating any revenue. Most of the tech startups are very different from opening a store or a restauraunt that can start bringing money almost immediately. In fact, if anything is similar to a restauraunt - it's B2B tech startups that sell the services to businesses (i.e. implement electronic record management systems in hospitals) - but guess what happens to business spending in a recession?

In many ways it is harder to persuade people to part with money in wage-intensive industries, since in case of factory equipment the investors can at least repossess the equipment - but labour can be completely useless.
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