Why the best time to build a new startup is during a recession

Pallav Nadhani is no stranger to being an entrepreneur during a recession. He launched his first startup as a 17-year-old in 2002 when the global economy was reeling from the dotcom bust and 9/11, then rode out the 2008 financial crisis as he bootstrapped FusionCharts into a profitable, global business.

Its data visualisation product had 28,000 customers, including most of the Fortune 500 companies, when Nadhani sold it to US-based Idera in March this year on the day that WHO declared the coronavirus outbreak a pandemic.

If you thought the next scene would be Nadhani riding off into the sunset, you’d be mistaken. He’s galloping into another frontier with his new startup Charts which is building visual analytics tools for prosumers—or those who use products somewhere between the level of a professional and a regular consumer—undaunted by covid-19 effect on the global economy and startups.

“Downturn is actually a good time to build something new because there’s only one focus: to find real customer value,” says Nadhani, before going on to list the main reasons why in his clipped manner. “A) There’s no noise in the market around funding, valuation. B) You get access to a lot of good talent without worrying so much about attrition. C) You’re focused on delivering the core value and not vanity metrics.”

One could add fewer competitors and lower marketing costs to the list. Some of the biggest unicorns were born during the 2008 financial crisis: Uber, Airbnb, Pinterest and Slack to name a few. Uber and Airbnb are badly hit by the current crisis because of social distancing, but not before they hit multi-billion-dollar valuations. And who’s to say they will not come out in new avatars?

Single focus

“Essentially while the world is in a recession, it gives you a good 18-24 months to solve the core problem you’re tackling,” says Nadhani. “You get to work with a great team to establish your value proposition and find a way to make money from it.”

Nadhani, who never took venture capital funding for FusionCharts, believes in building a startup with a monetizable business model from the get go, instead of chasing growth and scale as many VC-funded startups were happy to do in the times of easier money. He feels this should be sine qua non especially for startups in the B2B (business-to-business) SaaS (software-as-a-service) space in which he operates.

“In B2B SaaS, there can be multiple players in every category and everybody has to monetize,” says Nadhani. “Ultimately we are software providers solving pain points of other industries. That’s why it becomes a great opportunity in a downturn to build this in a truly sustainable way.”

Profitability is the mantra that all VCs are lately chanting to startups that had grown used to chasing growth in a breakneck fashion. But for Nadhani, it’s nothing new. It’s ingrained in his startup DNA.

“When I started FusionCharts in 2002, it was one of the worst downturns. Then we faced the 2008 financial crisis. We had important learnings on how to manage the situation. We were bootstrapped and organically grown with a diverse set of customers, so we still had double digit growth during the crisis years of 2008 and 2009. We’ve taken those lessons to heart.”

That was a time when venture capital was at a nascent stage in India. And Nadhani’s startup was based in Kolkata where businesses had a dhanda mindset of keeping a sharp eye on the bottom line. “Keeping costs extremely low was crucial, which helped us increase revenue. We didn’t need to hire fancy titles or expensive people at the start. So some of those things which became very organic for us helped us through downturns.”

Starting early

When Nadhani started as an entrepreneur, he was just a schoolboy looking to earn some extra pocket money. It grew to such an extent that his father gave up his own business to join the venture after a few years. They learnt about serving global enterprise customers as they grew.

This time, Nadhani is a mature entrepreneur who knows from experience how to respond to customer needs in a downturn. One of these is deciding when to be flexible and when to stand firm. For example, customers tend to ask for a discount or a moratorium on the current year’s payment. “It’s good to help the customer with billing relief if you know they’re really in trouble,” says Nadhani. “But if you think the procurement team of the customer is just asking for relief to score a brownie point, and the customer is doing well enough in this market, you should say ‘no’.”

No wonder this seasoned entrepreneur thinks the best time to build a new startup is during a crisis, when the mind focuses on value propositions for customers.

Malavika Velayanikal is a consulting editor with Mint. She tweets @vmalu.

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