Posted by: Will | September 22, 2008

Entrepreneurs Will Save America

The American economy is struggling, impenetrable financial institutions have failed or converted to bank holding companies, and consumer confidence is dropping. I spoke with European private equity executives last week who told me that many Europeans feel that American capitalism is being “propped up,” that free markets no longer exist.

In a sense, this is true. In a few days over the last week, the US government constructed a $700 billion bailout plan for the financial crisis. In a free market system, the financial institutions that were saved by government intervention would be allowed to fail, and the resulting bloodshed would allow for a more efficient economy.

Now the fate of the US financial system may lie in the hands of what the WSJ called “The Players Remaking Financial World” on September 20, 2008:

History has thrown a handful of men together this week with a task that they themselves might have brushed off as unthinkable just days ago: Give the U.S. financial system its biggest makeover since the 1930s. And do it quickly.

Will this group save America from collapse? And even if they do, how will America get back on a path of growth again?

The last year has seen a nearly 3,000-point drop in the Dow Jones Industrial Average, representative of typical losses in individual savings accounts. This has had the following effects:

  • Americans near or at retirement age have seen great losses in their retirement portfolio, with little means to gain it back through employment or investing, instilling concern and conservation.
  • Recent grads have seen severe decays in the job markets, and will likely see more cuts in bonuses and salaries. Since most are also burdened with student debt, we can expect their risk tolerance to be dramatically lowering.
  • 30- to 50-year-olds who are in middle management positions are potentially struggling from an upside-down mortgage after a recent home purchase. Worried about how to preserve enough money for their families, they will probably focus most of their energies on not getting laid off.

Therefore, it seems that the majority of the American workforce is scared about their financial future and we cannot expect the level of innovation necessary to push American businesses forward.

This is where entrepreneurs differ from the majority.

Financial Optimism

Entrepreneurs share a unique characteristic of financial optimism. They love to create something from nothing, using capital resources as efficiently as possible, and in success are rewarded with a great cash windfall for themselves and their teams.

Innovation Across Many Sectors

Of the 310 MBA students in my MIT Sloan class of 2008, I can easily count 20 who decided to start their own company after business school, despite the economy. Amazingly, these startup ideas range from solar energy to wireless power to consumer Internet (sorry that’s me) to mobile to biotech to business analytics.

In my circles of friends and professional contacts, the fear that is gripping America at large is not holding back entrepreneurs from following their dreams and creating innovative products.

Sources of Capital Still Alive

Since the late 90s, venture capitalists have continued to raise large funds, peaking at $1 billion for some firms, and creating the challenge of capital overhang. At the same time, angel funding has become a sophisticated source of capital for early stage companies, especially in Silicon Valley.

While large companies will be tightening their belts, the spicket is not necessarily shutting off for startup funding. Investors who believe in technology startups still have capital to put to work.

Role of Entrepreneurship in America

Entrepreneurship is key to growth and job creation in America. Small companies earn 50% of the GDP and provide 50% of all jobs [source: MIT Sloan 15.431 Entrepreneurial Finance]. As workforces are cut from Lehman, Merrill, AIG, HP, and other large firms, there will be a new crop of talent available to small businesses.

Josh Kopelman (serial entrepreneur and managing director at First Round Capital) recently blogged about this opportunity and referenced a website he started, LeaveWallStreetJoinAStartup.com, where he posts exciting startup jobs in the NYC area:

These days, startups are more stable than Wall Street (seriously).  And while a startup probably won’t offer the creature comforts of a job in the financial services industry, startups offer different benefits.  You get to participate in the creation of something new.  Your work makes a direct (and clear) impact on the success or failure of the company.  No more politics, endless meetings, or multi-layered organization structures.  Plus, you’ll likely get stock options to share the upside.

I couldn’t agree more with his sentiment.

Entrepreneurs Will Save America

America has always persevered through difficult times by innovating. It is the entrepreneurial nature of this country that cannot be quieted. There are many people, mostly in their 20s to 30s, whose passion and determination will not be undone by this financial crisis. I think these are the men and women who will save America.


Responses

  1. Loved your article Will, definitely the sentiment here at Assured Labor!

    – Joseph

  2. Entrepreneurs will definitely be the conquerer that will tighten the belt for the financial crisis we face today!! Don’t forget Paul Zane Piltzer’s prediction for the “Health and Wellness Revolution”. At the end-of-the-day, The Baby-Boomers still need to maintain health. Also, let’s not overlook what one great Author (Tim Sales) clearly defines…that Business is Simply…making someones life better”.

    Entrepreneurs….we have a lot of work to do!! LET’S GET BUSY!!

  3. Livin the dream! Hope all is well, Will.

  4. Nice article. Keep ’em comin’! All the best with Project Einstein.

  5. Will,
    I should put you in touch with Pippa Bark, senior producer at Fox Business. Ken Morse and Tania Aidrus spoke about the same subject on Fox.
    All of us entrepreneurs definitely think there is no better time to start a company.

    Keep it real!

  6. I hope you are right.

  7. great post, really enjoyed thanks!

  8. Great article, it seems counter-intuitive at first, but it does make a lot of sense. One problem I find though, a lot of startups will be providing goods or services to larger organisations, or even the consumer at large, who as you say may be tightening their belts, and adopting a more make do and mend attitude. Do you think the financial situation will affect the smaller business in this way?

  9. Very Encouraging….

  10. Nice feed Will!

    I love the optimism and creating the future from now, even with nothing – that has always been the true origin of most anything, and although many of us have good ideas stemming from either fear or experience, the young entrepreneurs have the energy and implementation to make it happen.

    It will be interesting to see if Fed’s last chip pulls a blackjack or a hard 15! And if this turns the ship or consumer credit sinks too!

    Onward young visionary…

    Chris.

  11. […] Market Fears. With many personal testimonials, the authors are confirming one of my points I made yesterday: Americans near or at retirement age have seen great losses in their retirement portfolio, with […]

  12. @powerstone If I interpret your question correctly, I think you are asking if the buying power of customers of small businesses will decrease, thereby threatening the survival of small businesses.

    This is an important issue. I think the short answer is that innovative business models around pricing can be created to overcome the apparent decrease in willingness to pay. I will need to think about this a bit more and will try to publish a post in the next week on this topic if I can.

  13. Yeah, exactly. And I suppose start-ups will be in a position to offer more competitive prices due to having less ‘bloated’ structures and less unnecessary staff. By their very nature they have to be leaner, more efficient businesses just to survive! I’ll look forward to reading your further thoughts on this if you do write that post!

  14. Will this was great and much needed! I think this message really needs to be publicized more heavily!

  15. Great blog Will!

    Just a few thoughts:
    -A foul economy definitely impacts potential buyers. However, startups that manage to cut costs for downstream businesses, offer higher quality service or offer breakthrough technologies will always find a customer base.
    -These emerging startups will also be tried and tested. Assuming they emerge from a recession, a latent demand can wait on the other side.
    – In times like these, people are paranoid of losing their jobs and recruitment can be difficult. On the flip side however, those hires who you can secure have an even greater sense of urgency, and an even greater desire to succeed.

    Best of luck!
    Z

  16. Great article. Since mood and expectations amplify the effects of or sometimes drive most financial crises, with its optimism entrepreneurship seems like the perfect antidote

    @powerstone
    I think how much you will feel the pinch depends on which sector you are in. I have a startup in agricultural biotech and we expect a drop in demand for crops in general, but this is being matched by a drop in oil prices hence lowering our costs. Also some industries actually do better during downturns, like entertainment.

  17. @Taylan Thanks for your comments! There is positive energy out there, we just have to harness it and support it.

  18. Will, thank you so much for posting this. Seriously.

    Random comment here, I know, as this was posted quite a while ago, but I’m a recent college graduate currently working on a start-up, so this really hit me when I first read it.

    I’ve got it as one of my top bookmarks and it’s one of the few posts that I turn to now every so often for motivation.

    Thanks for the amazing message here and the important reminder of why our generation needs to stay focused and keep working hard for the sake of the future.

  19. @Sayem

    Thanks for your comment. I am glad the posting has such meaning for you. I wish you the best with your startup. Can you share what you are working on?

    • @Will

      Thanks, Will. I’m working on Helptwits, which is a Twitter-integrated social search application. All you have to do is ask a question by updating your status with “??” at the end to get several answers back from other users.

      http://helptwits.com for more details; launching soon!

  20. […] most favorite blog posts of all time is this beautiful piece by Will O’Brien entitled “Entrepreneurs Will Save America“. That post was written in September 2008, just when the world was falling apart and even […]


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