Recession Winners And Losers

As recession mania spreads, lots of folks have weighed in with their recommendations. Sequoia says to hunker down and start firing people. Dave McClure says that when the going gets tough, the tough get going.

All fine and dandy if you’re interested in reinforcing your natural optimism or pessimism. But all of these posts focus on generic advice on how to deal with a recession. Where’s the specific advice on who’s truly fucked, and how to profit from others’ misfortunes?

Glad you asked, loyal reader, because here is my list of recession winners and losers. I think you know which one you want to be.


1. Conferences

Ever wonder how on earth there can be so many friggin’ conferences? Wonder no more–they’re fucked.

In 6 months, no one will even remember the difference between DEMO50Expo or SocialWebSummit. I feel bad about this one, since a couple of my friends make their money this way, but hey, I gotta call it like I see it.

2. Consultants

When a company wants to cut costs, is its first instinct to fire its employees, or its faceless consultants? Yeah, thought so.

Though I do expect “Independent Consultant” to see a big uptick in popularity as a LinkedIn job title.

3. Advertising-driven Companies

The very first thing that CFOs will look to cut after they institute a hiring freeze is the advertising budget. In good times, CEOs love branding and awareness. In bad times, advertising is just another expense that those bastards in Marketing are using to bankrupt the company.

Oh, and the argument that ad dollars will flow to online advertising because it’s measurable? True, but a falling tide strands all boats. When overall ad spending gets whacked, don’t expect online to be any different.

4. Angel-funded Companies

I love angel investors. I am an angel investor. But guess what, when times are tough, and a startup needs $1 million to stay afloat, those voicemails that you leave on the angel’s answering machine are going to go unanswered.

You see, VCs have to invest, or their LPs beat the crap out of them. As an angel investor, I can take my ball and go home any time I want.

5. First-time Entrepreneurs/First-time VCs

During the boom, lots of people get jumped up above the rank they deserve. Hell, I was one of those guys back during the Dot Com era. It was fun while it lasted. But when a recession comes,
the folks with deep pockets turn to people with experience.

“This changes everything/This time it’s different” sounds great when the stock market is surging, but is your death warrant when it’s plummeting.

On the plus side, you’ll have some cool failure stories to tell when the next boom gets underway!

6. Anyone Looking For Money

Good luck finding it. As I mentioned yesterday, my VC buddies have stopped asking me, “What good deals have you seen?” and have started asking me, “Can you give some advice to my portfolio company?” (Noted exception: Jeff Clavier is still making investments)

Similarly, if you’re raising a VC fund, good luck. The folks at RRE Ventures and their awesomely named “Five Years Too Late” blog have a great explanation of venture economics and LP psychology. Here’s the short version: “They’re fucked.”

Experienced entrepreneurs and VCs will still be able to get money, but if you don’t fall into that category, I suggest getting very realistic about your options, and fast (see #5 above).


But hey, it’s not all doom and gloom. While a recession makes times tough for almost everyone, there are still ways to come out a winner.

1) Online Porn/MMOs/Virtual Worlds

When real life sucks, the alternatives start looking better and better. When you’re wallet feels empty, are you going to want to go out and firehose money on dinner and drinks trying to find someone? Or are you going to pay $10/month for a sure thing? Sure enough, even as traditional DVD porn fades, online porn is kicking ass.

As for MMOs and Virtual Worlds, if your real life makes you feel like killing someone, why not spend your time in a place where that’s socially acceptable behavior? And at $10/month, it’s pretty much the cheapest hourly rate for entertainment available. Assuming you play 40 hours/week, that’s about 6 cents an hour!

2) Low Cost Providers

If my choice is hiring someone, or paying $1.11/hour for someone in Manila to do the same work, guess who’s getting my money?

I know tons of people who swear by oDesk, and I suspect their ranks are going to swell.

And if your work can be easily done by someone in a remote, low-income area (like, say, Missouri), get into a different line of work.

3) People With Cash

Simple supply and demand, bro. During a boom, capital is cheap and people are expensive. That’s why you can end up paying exorbitant salaries to low-grade performers–it’s simply the market rate. That’s also why VCs end up overpaying for deals.

But as Salvor Hardin would say, it’s a poor blaster that doesn’t point both ways. We are now entering a period in which people are cheap and capital is expensive. And if you’ve got ready cash, you now have god-like powers.

There’s a reason why my company has seen a ridiculous surge in job applications.

And if you don’t have cash? Remember to stock up before the next downturn. Sorry, but you already missed your chance this time around.

4) Bootstrappers

The corollary of people being cheap is that it’s a great time to bootstrap. If you can bootstrap (either because you can live on air, or because your business is profitable on Day 1), this will be a golden age. You’ll be able to find great employees, and you’ll be able to grow your business without the threat of 50 venture-backed copycats springing up overnight.

If you’ve got the stones to go this route, now is the time. Bootstrapping is a losing strategy during a boom, but *the* winning strategy during a bust.

5) Liquidators

There’s going to be a lot of companies going under, which means we’ll need vultures. Sure, being a carrion-eater isn’t exactly glamorous, but it can be lucrative.

Whether you’re liquidating entire companies, or simply buying stuff on the cheap and then re-selling it on Craigslist and eBay, this is your time.

But beware…a bust is essentially a Bizarro-boom for liquidators. Don’t make the same mistake as your food source. DoveBid was riding high during the last bust, but ended up going under and being taken over by the British. Don’t let this happen to you!


Now you know the winners and losers of the upcoming recession. The rest is up to you.

And if you have a bootstrapped online porn company/liquidator that uses aggressive offshoring to reduce costs, drop me a line. I’d be interested in investing.

16 thoughts on “Recession Winners And Losers

  1. Glad you liked it, Alex. Spread the word!

  2. Re: Independent Consultants. I’m biased, being a fairly successful one myself (and incorporated to boot), but if you absolutely need a job done, don’t want to make a commitment to hiring someone or don’t have enough work for a full time position, and have a good idea what your target ROI is, you hire a consultant.

    Now is a GREAT time to be a consultant… if you’re got the skills, the reputation and the references. People still need to get stuff done, but they don’t want to hire. As long as you’re flexible and your model doesn’t depend on getting hired on full time, you’re going to do well.

    If anyone needs Unix/Linux systems administration work, I’m willing to work a shift as small as 4 hours (one time, or ongoing on a weekly basis). My rate is $125/hr. and I have plenty of good and recent references on LinkedIn.

    I can be reached by cell at 831-295-3917. πŸ™‚

  3. Well the story tanked on hackernews, and my submissions there usually do better. I think the lesson is to not post links in a bout of insomnia at 3 am.

  4. alex,

    the point is to reference the fact this post has a link to porn in it (ok, porn news… it’s still porn)


    yeah, this was a great post. I’d say much better than your political ones πŸ˜‰

  5. Anonymous

    I think this is one of the weakest posts I have read in recent times. I am not sure how you are coming up with all of these gospel statements, but I can confidently question your basis for all of them. For someone who has taken a jab at the “faceless consultants”, your post reads a lot like what I would attribute to your definition of consultants – bad logic, shallow research and poor insight.

  6. I think this is one of the weakest posts I have read in recent times. I am not sure how you are coming up with all of these gospel statements, but I can confidently question your basis for all of them. For someone who has taken a jab at the “faceless consultants”, your post reads a lot like what I would attribute to your definition of consultants – bad logic, shallow research and poor insight.”


    Unemployed Consultant

  7. Anonymous

    I loved this post. And the Foundation reference clinched it for me. πŸ™‚

  8. D

    Hi Chris,

    Can you clarify your statement about capital being expensive? As in borrowing costs? But assets will be cheap, right?


  9. David,

    When capital is expensive, it means that a) borrowing costs are higher, and that b) in the startup world, valuations are lower.

    Let’s say that 6 months ago, you could get $5 million from venture capitalists for 25% of your company. Today, you might have to give up 50% of your company to get that same amount of money. The cost of capital has increased.

  10. Hi Chris,

    Interesting post. Though I don’t agree with all your assertions, I agree with most.

    I started my last business in 2001 and can remember the crazy-huge discounts we got on everything. Now I’m getting ready to launch my next business (launching next month) and it’s going to be a huge recession play as well.

    One side note: I do think consultants win overall during a recession — though the cushiest consulting jobs disappear and hourly rates tend to go downward. Most companies don’t want to hire, but they still need to get the job done. The big losers are middle management and low-end employees.


  11. Anonymous

    Good post, thanks.

    Pedantic point:

    Capital is not expensive, per se.

    It’s the risk premia that are incredibly high, and going higher. At some risk premia threshold, sources of capital like banks won’t lend at any price, because of balance sheet failures and the need to preserve technical solvency.

  12. As a resident of wonderful St. Louis, MO, I can tell you that my area only feels “low cost” and “remote” when I’m in our airport. Go 100 miles SW, of course, and you’ve really found your low cost area.

  13. You’re right on track with the #1 winner.

    If you use history as an indicator – alcohol vendors came up on top during the recession of 2001:

    Brick motor “sin” companies related to gambling and alcohol are sure to win while the economy is down.

  14. Erica,

    As a recession veteran, I expect your new business to do very well. I’d invest, but I’m pretty sure that you’re going to bootstrap and self-fund!

    In terms of consultants, the net effect is negative. The best consultants will do well, but overall, the supply and demand imbalance is bad news (too many “consultants” not enough clients).

  15. Aaron,

    Glad to hear from a resident of the fine city of St. Louis!

    Yep, St. Louis isn’t that low-cost, but alas, if I used the name of a city in rural Missouri, no one would recognize it.

    Hope you’re enjoying Albert Pujols…he’s an all-time great!

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