Periods of economic decline can cause uncertainty. Some situations that may occur during an economic downturn include Initial Public Offerings (IPOs) declining, markets falling, and reallocated investor capital. The uncertainty recessions bring can incline founders to wait to launch a new venture. However, recessions have also helped breed innovation not typically found in economic upswings. In fact, many well-known companies began operations during recessions and were able to build their business when the market corrected. Keep reading to learn more about some of the companies that innovated their way through recessionary times.
Microsoft (1975)
Microsoft was founded in 1975 during one recession lasting from 1973-1975. Spurred by the 1973 oil crisis where oil prices rose nearly 300% over 5 months, the US experienced “stagflation” with simultaneously high unemployment rates and inflation. Nevertheless, childhood friends Bill Gates and Paul Allen disrupted the tech industry and famously only brought in $1M in outside funding at a $20M valuation[1] before going public in 1986 and becoming the tech giant it is known as today.
Electronic Arts (EA) (1982)
Electronic Arts, better known as EA, is the video game developer and manufacturer behind The Sims, Madden, FIFA, and other popular titles. Founded in 1982 during what was at the time believed to be the worst US economic downturn since the Great Depression, the US was enduring widespread unemployment with the manufacturing, construction, and auto industries being the most affected sectors. Despite the market conditions, EA was formed in 1982 by former Apple employees and raised $2.2M from private investors over the course of that year[2]. The biggest competitive advantage was EA’s willingness to produce multiple versions of their games to run on different systems. This flexibility allowed them to adapt to the ever-changing customer desires as computer hardware systems were rapidly changing. EA continued to adapt and held its initial public offering in 1989.
Apple (1976, 2001)
Apple was founded shortly after the 1973-1975 recession and gained a second birth during the 2001 dot-com bubble. Originally, Stephen G. Wozniak had a dream of building his own computer. This dream became feasible after the first commercially successful microcomputer was built in 1975. Wozniak moved in with former high-school classmate, Steve Jobs, to finally build the computer – and the second iteration had a colored display and a lighter-weight plastic case making it appeal more to customers than the other models on the market. The company grew, and Apple went public in 1980 with over $100M net revenue and more than 1,000 employees[3].
In 2001, Steve Jobs set out to build the iconic music player known today as the iPod. This was directly after the dot-com bubble, a period of massive growth in the use of the Internet that spanned 1995 and 2000. Stocks soared, with Nasdaq rising 400% before falling 78% by October 2002[4]. The financial crash that occurred scared many businesses, but Steve Jobs released the iPod in October 2001 after only 1 year of development. Despite coming during the turbulent times of the dot-com bubble crash, the technology paved the way for the iPhones and smartphones we use today, disrupting the industry.
Airbnb (2008)
The 2008 financial crisis was a period of great uncertainty, deemed The Great Recession, characterized by foreclosures and bankruptcies. Roommates Joe Gebbia and Brain Chesky found themselves in a position where they couldn’t afford their San Francisco rent. Seeking to make a bit of extra income, Gebbia emailed Chesky with an idea. A big design conference was coming up in the city, and attendees were hard pressed to find hotels and suitable accommodations. Gebbia proposed turning their loft into a “designers bed and breakfast” and acting as tour guides for the traveling conference attendees. Their first three guests were a success, and they decided to turn it into a business.
Over the course of their launch, seven investors turned down the company’s pitch for seed funding. The company was launched 4 different times, with investors barely taking notice, let alone investing in the company. But the fourth time, they launched at the 2008 Democratic National Convention which was facing the same hotel room shortage as the design conference in San Francisco. Bootstrapped marketing efforts led to customized limited-edition cereal boxes of Obama O’s and Cap’n McCains which sold for $40 each and netted the company $30,000. Paul Graham took notice and invited the founders to join Y Combinator, where they continued to be overlooked by investors. But the scrappy scaling techniques continued, and Sequoia Capital injected $600K in seed funding to the company in April 2009[5]. The growth continued, and Airbnb went public in 2020.
Groupon (2008)
Also founded during the Great Recession, Groupon originally held a different name: The Point. Aimed to help fix problems with online fundraising, each fundraise hosted on The Point had a “tipping point” or a certain amount of money or signatures needed for the plan to take place. Credit cards were not charged until the tipping point was met, which took a significant amount of risk away from donors. The Point never took off in its original form, but users clung to one aspect of the site: group deals. Mason focused on this aspect, spun it out into a different company named Groupon, and contacted numerous vendors to organize daily deals for consumers. However, each deal had a tipping point – if a set number of people purchased the deal, Groupon would take a portion of profits and if not, Groupon would not receive anything. The first Groupon deal was to buy two pizzas for the price of one, and 20 people purchased the deal. Vendors would receive new business which would hopefully lead to repeat customers, and customers had access to money-saving deals in a time full of economic uncertainty. After only 3 years, Groupon conducted their IPO in 2011 and has since continued to grow.
Uber (2009)
Also during the Great Recession, friends Travis Kalanick and Garrett Camp were attending an annual tech conference in Paris after selling their respective startups. They were not able to secure a cab to get home, and they wished for the ability to hail a cab from their phone. After going their separate ways, Camp fixated on the idea and began work on this side project. Tested in New York in early 2010 with only 3 cars, the official launch occurred in San Francisco that May. The company was slow to attract investors, and Mark Cuban turned down the opportunity to buy a 5% stake in the company for only $200,000[6]. But they secured $1.25M in capital in October 2010,[7] continued their international expansion, and went public in May 2019.
Final Thoughts
In times of economic uncertainty, venture capital may not be as readily available, and founders may feel deterred from launching their businesses. However, several recognizable businesses have launched during recessionary times. Economic recessions can lead to unique innovation, bootstrapped efforts, and scrappy business-building tactics. VentureBeat describes The 3 Ps of determining your ability to launch at the right moment as perspective, patience, and practice[8]. Gaining insights from multiple perspectives, being patient and intentional with launch efforts, and practicing can give founders a steady hand during difficult and uncertain situations. While recessionary times may discourage founders, there can be unique opportunities during these times that may propel the business toward success.
[1] https://techcrunch.com/2017/08/08/a-look-back-in-ipo-microsoft-the-software-success/
[2] https://www.crunchbase.com/organization/electronicarts/company_financials
[3] https://www.britannica.com/topic/Apple-Inc
[4] https://www.nasdaq.com/articles/what-rhymes-with-dot-com-bubble-blockchain-trouble.
[5] https://www.businessinsider.com/how-airbnb-was-founded-a-visual-history-2016-2#since-the-site-wasnt-making-money-the-guys-transformed-cereal-boxes-into-obama-os-and-capn-mccains-and-sold-them-on-the-streets-for-40-bucks-a-pop-each-one-came-with-a-limited-edition-number-and-information-about-the-company-their-bootstrapped-marketing-strategy-netted-them-30000-to-put-toward-the-company-12
[6] https://www.huffpost.com/entry/this-200k-investment-in-2010-is-worth-33-billion_b_579d8edbe4b00e7e269f99bd
[7] https://venturebeat.com/2010/10/15/ubercab-funding/
[8] https://venturebeat.com/2019/10/20/why-unicorns-love-recessions/
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The information presented here is for general informational purposes only and is not intended to be, nor should it be construed or used as, comprehensive offering documentation for any security, investment, tax or legal advice, a recommendation, or an offer to sell, or a solicitation of an offer to buy, an interest, directly or indirectly, in any company. Investing in both early-stage and later-stage companies carries a high degree of risk. A loss of an investor’s entire investment is possible, and no profit may be realized. Investors should be aware that these types of investments are illiquid and should anticipate holding until an exit occurs.
