startupi

When your car is running near empty, do you drive faster to get to the nearest gas (or ethanol) station as soon as possible, or do you go slowly to conserve gas and guarantee you’ll arrive?

And if you don’t know where the next gas station is? Does this change your strategy? If you have a strategy for this, leave a comment below.

One thing: when you are working in a startup you hear people say “we’re in a bubble, but it will come to an end.” When the VCs are still sending millions of dollars to keep things operating it’s easy to ignore. Another thing: you’re just getting your own startup going and this bubble - which was just an abstraction, like some data structure you know about - suddenly turns into the worst economic crisis in history. This transition occurred in the second half of 2008 here in the US. In the beginning quite slowly, but then Wall Street started to crumble. The reality is new investments have practically ceased to exist, the wellspring is dry. VCs are more worried about the survival of the businesses they invested in in past years than investing in new ideas. Making sure their children survive rather than making more children. Just a glance at the exclusive online entrepreneurs forum TheFunded.com one quickly sees how few investment deals are being closed.

But who needs investors? Paul Graham, the man behind the Y Combinator initiative has encouraged startups to go ahead during this crisis.

“…The solution to make a startup immune to recessions is exactly the same strategy needed during good times: operate in the cheapest manner possible. For several years I have said to founders [of startups] that the road to success is to become cheap in the corporate world. The immediate cause of death of a startup will always be lack of money. So the more cheaply you can run your company, the more difficult it will be to fail. And happily it’s getting really cheap to run a startup. A recession, if it comes, will make it even cheaper.”

Exactly. The good news is that, today, startups are less dependent on big investments. The quality of offers and liquidations due to the crisis is surprising:

• Office rents in New York have fallen to really reasonable levels (a CEO friend of mine moved the whole team from his house to an office in Manhattan this week, because now “it’s affordable”). Alternate schemes like co-working are also good options.
• Businesses that didn’t wish to risk anything doing business with startups are now lining up asking if there’s interest in that project.
• With so many people being laid off from big companies it is much easier to find help, even if it’s temporary - because not one has the nerves of steel needed for the startup world.
• And that’s not considering offshoring. Most startups I am in touch with here in New York use technology and design teams in Brazil, Argentina, Eastern Europe, now that the exchange rate on the dollar is lower, with the crisis.
• Free software in combination with virtual technologies and cloud computing have lowered the initial costs of website infrastructure immensely. With 200 dollars a month you can maintain four or five application servers and a database using Amazon’s cloud.
• A whole series of web services that Google, Yahoo and others have made available for free can let you save time and money instead of reinventing the wheel.

It’s not easy to start a business when you’re running on empty, but it’s not impossible.

About the author of this special guest post:

Alberto Escarlate is CTO and co-founder of TigerTag, a (still secret) service that will be launched in the first trimester of 2009. He is also interim CTO of social applications and geolocalization at YellowPin (actually running on Facebook with version sin the works for MySpace and mobile). Before this Alberto was CTO of Entertainment Media Works, a startup that made various contextual business products (StarStyle, Stylelogue and Plink). While living in New York for 12 years he has always worked on cutting-edge interactive technology projects. In Brazil, Alberto worked as Director of Technology and Projects at Midialog, being part of the original team that built the business before it was renamed Agência Click. A first generation blogger, Alberto has written for blogs like Engadget, Silicon Alley Insider, TUAW, and SmartMobs, among others.