The Jeff Pulver Blog: Startups in 2009: Time for a NEW Kind of Entrepreneur

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January 05, 2009

Startups in 2009: Time for a NEW Kind of Entrepreneur

After reading the recent TechCruch story: "Oy Vey! Israeli VCs Exceptionally Gloomy on 2009, I feel it is necessary to share another side of the Israeli Hi-Tech business scene. I am not suggesting that times are great at the moment, but they are not as bad as one might think after reading the Deloitte report.

In reality, regardless of the state of the economy, people continue to get inspired and technology innovation will continue to happen. This in turn leads to the launch of a new startup.

When times are great, there is usually money available to fund all sorts of Hi-Tech startups. And when things are not so great, raising money is much harder. The worldwide economic funk of 2008 is responsible for an emerging trend in the Hi-Tech startup world I first saw in Israel in 2008 which has resulted in what I can only describe as the birth of the "NEW Entrepreneur."

The NEW Entrepreneur is someone who has a decided to "do a startup" by partnering with one or more of their friends who understand the concept of bootstrapping from the very beginning. The startup team are people who watch each other's back, are aware of their individual strengths and weaknesses and in effect are there to provide a sense of balance for each other. These new Entrepreneurs understand that they can't rely on outside funding to get their company started so they need to do whatever is necessary to make their vision and dreams come true on their own.

The NEW Entrepreneurs know how to turn pennies into dollars and a dollar into a hundred dollars. For the record, such people exist and have been doing just this in the Israeli Hi-Tech scene. During 2008 I had a chance to meet up with quite a number of these NEW Entrepreneurs.

NEW Startups realize they can't start a business that will have a high burn rate or a strong dependency on outside money. They realize that whatever money they may be able to raise from their friends and immediate family members might be the only money they will be able to raise for the foreseeable future. So startups in 2009 may look a lot different than in previous years. What I am seeing starting to emerge are "lean and mean" startups from the very beginning. It turns out that while the economy may not be in everyone's favor, thanks to the continuing affects of Moore's Law and the sheer disruptive power of the Internet, it is possible to start companies these days with just raw talent, vision and the innate ability to deliver on the vision.

The typical kinds of startups which can thrive in this kind of setting are those who decide to focus in the Internet / Apps / Services space. Ideas that can leverage existing infrastructure and existing APIs. Some leverage open source projects and others are launching their own open platforms.

We are living in a time where so much really can be done with so little money. This reality may prove to be disruptive for the traditional VC investment model. As NEW Startups launch themselves in 2009 and gain traction in their sectors, the part of the venture community which traditionally invests in "Early Stage" startups is at risk of missing the opportunity to invest in these next-generation companies because the needs of capital will not be at the same levels as in past generations. One of the by-products of the Web 2.x generation is that these days companies can be started for Micro levels of money in 2009 as compared to similar startups of the recent past.

In mid 2007 I first discovered Israeli Hi-Tech Entrepreneur who knew how stretch pennies into dollars I started doing what I was described as "Micro Investing." Simply put, I provided the minimal amount of capital needed to help a company take their concept and complete their prototype /. proof-of-concept. I was not an Angel investor. I did not invest in a convertible note. No, I was there in the beginning and provided the capital to help start the business. Since then I have become a "Technology Scout" of sorts and spend my time in Tel Aviv meeting with young startups. This is work I am committed to continuing in the weeks and months ahead.

In a number of cases, my Micro Investment was followed by a successful Angel Round and/or venture round. The reason these companies were able to survive the economic downturn of 2008 was because they spent their year in bootstrap mode. The management team did not take any salaries and they took odd jobs along the way to pay their own bills and to keep their the dreams of the NEW Startup alive. (The few write-offs from my startup portfolio of 2008 were startups which failed to live by these rules.)

The successful startup in 2009 will be a humble startup. One where the burn rate will be kept to a minimum and where the people involved have a strong passion for the vision and have a "can do" attitude and for the most part in a position to do their technology development on their own. This approach for the NEW startup will not work in a traditional capital intensive business but will present new opportunities for inspired NEW Entrepreneur in the Internet / Software / Services space.

While there will continue to be people who believe startups need to have a burn rate together with an office in the best part of town, in a great building with a great looking office, those who survive will be there because they choose to be humble, smart, focused and because they understand how to bootstrap a business.

The other reality is that these startups have the added pressure that they may not be able to raise their next round of capital until a time frame that is much longer than they ever could have predicted. Again, those companies that were built from a bootstrapping model will have what it takes to survive. I'm not suggested one has to get to revenue any faster but rather needs people who are there for each other and are committed to being there for the long run. And if there are people who need to take on side projects to fund their lifestyle and pay their bills at home, such distractions are understood from the start and are done in the open rather than in the dark.

I believe the startups who are born in 2009 and who are focused on bootstrapping from the start and are built with the understanding that they will have very little access to outside capital will have a much stronger chance for success than the companies who were born in a time where the venture money was flowing much freer.

- - -

If you are a NEW Entrepreneur and if your startup is a NEW Startup as described above, please feel free to take a moment and update me about your plans. I am always interested in meeting with interesting and smart startups.

Tags: Tel Aviv, startup, Entrepreneur, Jeff Pulver

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Posted by jeff on January 5, 2009 06:14 AM | Permalink

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Posted by: BlackGraduateNetwork.com at February 8, 2009 03:50 AM

Enjoyed your post Jeff,
We agree that the new entrepreneur should monetize from day 1 and services are the usual method (if not a day job). We connect with alot of start-ups with our networking site and we counsel them to be Ramen profitable asap as Guy would say.

A great resource for Vancouver area NEW entrepreneur's are the Milestones to success and Angel forum seminar series which we cover on fundfindr.tv

Hope to see you on the 11th Jeff.

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Jeff,
Great point of view. I would say that in 2009 these capital-efficient startups will be the ones with a lot higher success ratios in US. We are going to have much better 2010-2011, because these companies will already have value the built up almost out of thin air.

There is one caveat, talent is expensive and best ones have enough choices out there. Startups who figure out how to attract the cream of the crop people at least join their bootstrapped startup as a side-job/hobby will do very well.

There would be more of these lean startups, except many talented individuals lived it up in 2007-2008 and they don't have the reserves required to survive down economy, hence they need a job that pays bills.

Oh well, we live and learn.

Apolinaras "Apollo" Sinkevicius
LeanStartups.com

Posted by: Apolinaras "Apollo" Sinkevicius at January 5, 2009 05:36 PM

The startup on a shoe string budget was always also common in the UK and in Europe in general. Until the last few years there was little VC funding there. The down side is that things move very slowly and one is very constrained without money.

In the past such ventures have often been overtaken by their better funding counterparts in the US who were able to finance infrastructure and marketing.

A shoe string budget and smarts goes a long way as long as one's competitors are not better funded or more savvy.

Posted by: Owen.Brunette at January 5, 2009 05:07 PM

Good old fashioned business tactics - always welcomed back!

mp/m

Posted by: Mike Maddaloni - The Hot Iron at January 5, 2009 04:21 PM

Hi Jeff,

Interesting thoughts. If I understand you right, the concept you are talking about is very common today (and has been for a couple of years now). It brings a new kind of freedom & opportunity for the brave and determined ones with a dream/goal.

I agree with you that the Internet / Software / Services space is probably the best route to go, since it doesn't involve a lot of capital to start - pretty much only a computer and some mad skills (isn't this what the whole work-at-home industry is about?).

We started our present company about 2 years ago or so. No money (and no loans), just one internet-connected computer each in a small flat in Buenos Aires with a dream of being Digital Nomads...a dream that, I'm happy to say, is becoming reality not only for us but for many people today. :)

I hope this is what you would see as NEW entrepreneurship?

May 2009 bring you lots of amazing things!
- Tess

Posted by: Tess Neale at January 5, 2009 06:21 AM

Completely agree - it's never been a better time for entrepreneurs to bootstrap and knuckle down to create a successful business. In fact, the best ones have always been created in down-markets and those that survived came out of it immensely strong.

Posted by: Philip Wilkinson at January 5, 2009 06:11 AM

Great insights, Jeff.

I completely agree and also see 2009 as the year of the joint venture as people with assets and abilities will be pushed to explore sharing in the work and risk of a venture and trading effort for money, instead of pushing much of the financial risk off on VCs.

This all makes you wonder if the next year will impact the overall "relevance" of VCs, too. Will be interesting to see how it shakes out.

Posted by: Jonathan Fields at January 5, 2009 06:08 AM

January 05, 2009

Startups in 2009: Time for a NEW Kind of Entrepreneur

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