Are Startups in a "Silent Recession"?

The startup world is in a "Silent Recession" that no one is talking about, and it's a real problem.

Most of the Founders I speak to in private say the same thing — their business isn't going well. It's a combination of a weird economy, a Nuclear Winter in startup funding, and sky-high interest rates. Economists can tell us that the stock market is at an all-time high, unemployment is down, and inflation means people are spending too quickly. Yet if you talk to enough Founders honestly, they will tell a very different story.

If you're at a point where you're trying to understand why things aren't quite going as well as they should, let me shed some light on things my friends. We're in a Silent Recession among startups, where secretly they are all struggling, but publicly we're supposed to pretend things are great. Well, they aren't great, and here's what we need to do about it.

It's Not Just You

At Startups.com we get to talk to Founders in every possible industry at all stages of growth. This gives us a unique perspective to see trends that most others cannot. One of the most consistent trends right now is that no matter what industry you're in — you're probably struggling.

But the problem is that you only see your industry — you don't get a real view into what other Founders are experiencing. So you think, "Well this is just a problem with MY company, product or industry." It's not. Yes, you're dealing with some shit right now, but it's part of a more significant trend that goes beyond your particular part of the world.

The reason not having that bigger perspective is such a problem for Founders is that it can cause us to make bad calls with broken assumptions. We assume that everyone else must be doing just fine, so whatever we're doing is extra broken. When in fact no matter what we do, we're going to face some level of strife because the tide is lowering for everyone.

What's Actually Happening?

To put it simply — we've lost momentum. COVID was supposed to crush everything from a startup perspective, but because of how well the economy performed, as well as record low interest rates, it created this bizarre artificial momentum that created an extraordinary amount of startup activity. That was 2021. That was 3 years ago.

Those low interest rates, as well as a stock market that was doing incredibly well, fueled a ton of investor activity, which in turn fueled a ton of startup activity. All of a sudden, Founders were raising massive rounds, which led to an insane amount of hiring and spending in a short period of time.

That's how the momentum gets created, but just as soon as the party got going, someone turned off the lights. Now the party is long since over and startups haven't raised meaningful funding rounds in years.

When later-stage startups stop becoming liquid (IPO, sale), investors' appetite for funding in the earlier stages evaporates because they don't feel like they are missing out. When the money runs dry, the only way to stay afloat is to cut costs, which now means lots of staff (which is why you probably don’t know of many startups that are hiring right now).

What do we DO about it?

We have to treat the moment like the storm it is. It's messy and nasty, and it will do some real damage, but it will also pass. We have to understand that we're in a very real dip. People are scared — our customers, our investors, and of course, our staff. The headlines may be screaming "Inflation!" but the real issue is uncertainty.

The strategy right now is simple — stay alive. That means we'll have to run leaner for a bit longer, it means we'll substitute "growth" with "survival." It means we can't rely on finding an investor to bail us out or customers to fall out of the ceiling. We have to work twice as hard for half as much.

I've been living like this for 30 years across 9 startups. I've seen this movie way too many times. When things are going well, everything thinks they will never stop, and when things are going poorly, everyone thinks "This is the end." It's not — it's a moment — and if we're willing to hold tight until things blow over, we'll enjoy the next upswing.

And trust me, friends — there's always an upswing after this.

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