Over the last thirteen years, since the Great Recession, the economy has been rigged. Yes, rigged. To spur the economy back into a growth phase after 2008’s near depression, the Federal Reserve created a loose monetary policy that made money very cheap (near-zero interest rates and the central bank bought assets, otherwise known as quantitative easing). It thus encouraged consumers, investors, and institutions to spend, take historically high risks, and lend…
This created an environment for startups to scale rapidly, garner market share, and worry about profitability later.
It’s crazy because thirteen years is a long enough time that many startup founders/CEOs have never experienced a recession, at least in their professional careers. So, today’s environment, a recession with tight monetary policy and rising rates making money more expensive, is an entirely foreign concept.
Imagine that: Leaders of startups have no context as to what a recession looks or feels like.
We are in a time of risk-off and poor investor sentiment — the worst possible environment for startups to thrive. From the best possible situation over the last 13 years (2009-2021), to one of the worst in 50 years, we are very quickly about to find out which startup leaders are for real and which ones aren’t.
In Canada, publicly traded startups/early-stage companies have, on average, lost roughly 40% of their value since last November. And many will lose nearly their entire value before this recession is over.
While I was in Montana recently, I filmed a quick walk and talk about what I think will be required of startup CEOs, especially ones that have shareholders and will need to raise more venture capital.
I share some telltale signs to look out for that will give a strong indication as to whether or not CEOs are prepared for the challenging times ahead.
While this is a treacherous market to navigate at the moment, I do believe this is a natural, healthy cycle the economy needs to go through for us to build and grow sustainably in the future.
Actors in the startup world need to realize that what we went through over the last thirteen years was not normal. The last thirteen years accommodated risk-taking and consumer spending from a monetary policy perspective. And yet, as bad as some say today’s inflationary, rising rate environment is, interest rates are right around their 50-year average.
It’s time for CEOs to get scrappy and wear more hats…