2009 May Smile on Disruptive Startups

By now, most agree that this recession is likely be longer, deeper and fiercer than those in the past, rendering smaller, newer companies especially vulnerable. Such vulnerability is already playing out in the public markets: Over the past three months, the Russell 2000 has fallen much further than the Dow.

There is, however, a way for startups to not only stand out in this recession, but thrive in it: By being as disruptive as possible.

The me-too business model that fared pretty well during good times will be toxic this year. Venture-backed IPOs grew scarce last year and there will likely be few in 2009; merger activity is also expected to remain sluggish. Startups with little or no revenues or a high burn rate may not make it through December.

In an economy where risk is shunned, boldness is a risk that still offers a shot at success. It’s much easier to say this than to make it happen. But there is reason to believe that 2009 will allow original ideas, and companies behind them to come forth.

Recessions dry up funding for innovation, but often innovation goes underground — or rather, back into the garage. For those that produce successful innovations, there may be fewer competitors around to copy their successes.

Some of the costs involved in starting up a business are falling. Office rents are declining. Used office furniture is available for cheap on eBay and Craigslist. Software programs that used to be costly are free, thanks to Google Apps and (with many restrictions) Microsoft’s BizSpark.

So technology, especially on the Internet, is likely to continue to evolve rapidly. Mobile devices and netbooks could invite people to spend more of their time online, expanding a captive audience for provocative new applications. The trick will be in monetizing their attention.

Recently Richard Moross, CEO of UK startup Moo.com, on the Guardian UK site outlined the kind of thinking startup founders may take in the downturn.

Be honest with yourself. Is this really a business? Is it really different? If the elevator pitch includes the words ‘Twitter’, ‘social network’ or ‘it’s web app X meets geek meme Y’ you probably need to rethink things – those days are gone. Today your idea needs to be super-relevant: do people actually need this, or are you just a solution looking for a problem?

Years of complacency have left many an apple cart ready to be tipped over. Startups that disrupt in a way that resonates with consumers and companies could emerge from this recession stronger than ever.