Over the years, I have read that, at least in the US, almost half of the Fortune 500 companies started during a downturn or bear market (at least 15 years back). I do not remember reading a more recent study, but this fact has been mentioned during every significant downturn.
I found the article below in the Economist stating the same fact:
The general explanation that I have seen for this phenomenon is as follows:
During economic downturns, several factors contribute to the founding of successful companies. Costs for resources like labor and real estate are often lower, making it cheaper to start a business. The challenging environment pushes entrepreneurs to innovate, leading to unique products or services. With fewer new businesses launching, there is less competition, allowing newcomers to establish themselves more easily. Additionally, layoffs and job uncertainty increase the availability of talented individuals eager to join new ventures. Shifting consumer needs during these times can also reveal new market opportunities, creating an opportunity for entrepreneurship despite the economic challenges.
Here is a small list:
Here are some examples of thriving organizations that were started during times of economic crisis or depression:
Fortune Magazine (90 days after the market crash of 1929)
FedEx (oil crisis of 1973)
UPS (panic of 1907)
Walt Disney Company (after 11 months of smooth operation, the 12th was the market crash of 1929)
Hewlett Packard (Great Depression, 1935)
Charles Schwab (market crash of 1974 – 75)
Standard Oil (Rockefeller bought out his partners in what became Standard Oil and took over in February 1865, the final year of the Civil War)
Agree. I think starting a business during a downturn makes you focus more on efficiency. If you are inundated with calls from VCs wanting to give you money, it usually is a bad sign.
Your last paragraph is the coup de grace. What is the correlation between new business formations on the one hand and the economic and credit cycles epitomized by liquidity availability( influencing market based risk premia), credit (bank loan) growth, and of course equity market performance and valuations?
Over the years, I have read that, at least in the US, almost half of the Fortune 500 companies started during a downturn or bear market (at least 15 years back). I do not remember reading a more recent study, but this fact has been mentioned during every significant downturn.
I found the article below in the Economist stating the same fact:
https://www.economist.com/finance-and-economics/2012/01/07/downturn-start-up
And the study it mentions from 2009:
“Well over half of the companies on the 2009 Fortune 500 list and just under half of the 2008 Inc. list began during a recession or bear market.”
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1580136
The general explanation that I have seen for this phenomenon is as follows:
During economic downturns, several factors contribute to the founding of successful companies. Costs for resources like labor and real estate are often lower, making it cheaper to start a business. The challenging environment pushes entrepreneurs to innovate, leading to unique products or services. With fewer new businesses launching, there is less competition, allowing newcomers to establish themselves more easily. Additionally, layoffs and job uncertainty increase the availability of talented individuals eager to join new ventures. Shifting consumer needs during these times can also reveal new market opportunities, creating an opportunity for entrepreneurship despite the economic challenges.
Here is a small list:
Here are some examples of thriving organizations that were started during times of economic crisis or depression:
Fortune Magazine (90 days after the market crash of 1929)
FedEx (oil crisis of 1973)
UPS (panic of 1907)
Walt Disney Company (after 11 months of smooth operation, the 12th was the market crash of 1929)
Hewlett Packard (Great Depression, 1935)
Charles Schwab (market crash of 1974 – 75)
Standard Oil (Rockefeller bought out his partners in what became Standard Oil and took over in February 1865, the final year of the Civil War)
Coors (depression of 1873)
Costco (recession in the late 1970’s)
Revlon (Great Depression, 1932)
General Motors (panic of 1907)
Procter and gamble (panic of 1837)
United Airlines (1929)
Microsoft (recession in 1973 – 1975)
LinkedIn (2002, post dot-com bubble)
Agree. I think starting a business during a downturn makes you focus more on efficiency. If you are inundated with calls from VCs wanting to give you money, it usually is a bad sign.
Re the last paragraph, markets trend aound two-thirds of the time, and the typical secular bull market goes on for not much less than a decade.
So, if you're starting a business during a bull market, all you need is some luck to be able to surf that wave.
Your last paragraph is the coup de grace. What is the correlation between new business formations on the one hand and the economic and credit cycles epitomized by liquidity availability( influencing market based risk premia), credit (bank loan) growth, and of course equity market performance and valuations?