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Your next business
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February 4, 2002: 12:02 p.m. ET
Forget the recession. The right time to start a business is anytime you have a great idea.
By Alan Cohen
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NEW YORK (Fortune Small Business) - Maybe you're getting your teeth cleaned when it hits. Or sitting at home watching Regis trying to extract that final answer from yet another aspiring millionaire. When that eureka moment strikes and the great new idea dawns, the where doesn't really matter.
Unfortunately, the when does. And it doesn't take a genius to understand that this isn't the booming era of just two years ago, when a roaring economy created ever-higher waves of investment bucks.
Common sense would suggest that it is hardly the best time to be dreaming up a great new idea and starting a company to exploit it. But since when did common sense ever apply to entrepreneurship? True, timing matters if you're defusing bombs or if there's a roomful of people waiting for you to say "I do."
But company building is supposed to be a counterintuitive, even radical act. "For the right ideas this is a great time," says Gary Hoover, a serial entrepreneur who is about to launch his next venture. "It's a great time to seize the opportunity." (To see how he defines a great idea, see "My Next Business.")
In fact, challenging economic periods have consistently proved to be good times to launch new businesses. Sixteen of the 30 companies whose stocks make up the Dow started during recessions. General Electric traces its roots to the panic of 1873. William Hewlett and David Packard founded their eponymous business during the Great Depression.
Ancient history, you argue? The year 1982 didn't look like such a great time to launch a technology company: The U.S. was in the midst of a recession and unemployment was at its highest since World War II. Seems the founders of Sun Microsystems, Compaq Computer, Adobe Systems, Silicon Graphics, and Lotus Development disagreed. All those companies started up that year -- and prospered.
How did such big-name companies buck the odds? Ideas -- the good ones, anyway -- are always in demand. And now is a perfect time to take your idea and run with it. It sounds illogical, perhaps nonsensical, but the simplest way to put it is this: In good times you'd never have it so good.
These days, it may be easier to raise startup money than it was during the boom. No, it doesn't seem that way. But that's a perception promulgated by precarious or now deceased startups. "The companies founded two or three years ago have been struggling with the assumption that follow-on investments would be as easy to get as the initial funding," says Geoffrey Moore, venture capitalist and the author of Crossing the Chasm. "They're not getting [the follow-on] funding, and so they're telling people that VCs don't want to spend. We do, but more on the traditional companies missed during the dot-com bubble."
While there's no question that the moneymen are keeping a close watch on their wallets and asking a lot of questions, that kind of vigilance actually works in favor of the smart entrepreneur with a bright idea. Anyway, there's a difference between a cautious investor and an empty-pocketed one.
"People are sitting on millions of dollars," says Jack Derby, founder of Derby Management, a Boston-based consulting firm that specializes in helping venture-backed companies. "The upside is that the money isn't already gone. It's still there." According to venture capital watchdog VentureOne, VCs raised $39 billion in the first three quarters of 2001 but have invested only $25.5 billion of it.
Hard times are also boon times for wading into the talent pool. "In rapid-growth times it's hard to get the right people -- you're more likely to compromise on who you get," says management guru Jim Collins, author of Good to Great.
But in a recession a new company can land better-qualified, less expensive employees than at other times. Indeed, with everything costing less, you can ask cautious investors for less, showing your prudence and making you a more attractive prospect.
As always, businesses that can help solve the day's most pressing problems stand the best chance for success. "A roaring capital market is not a critical ingredient," says Charles Holloway, co-director of the Center for Entrepreneurial Studies at Stanford University. "What you need are ideas that address a critical need in the marketplace."
Sun's workstations enabled buyers to lower costs and boost efficiency just at a time -- the recession-plagued early '80s -- when cost cutting and increased efficiencies were imperative. "In hard times big companies stop investing in R&D," says Collins. "That opens doors."
It's hard to find the right idea for the right time. For where some top entrepreneurs think the best opportunities lay, see "The next big idea." 
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