Intel (1968), Microsoft (1975) and Apple (1976) were started during the teeth of the bear market that ran from 1966 to 1982. Bill Hewlett and Dave Packard started HP during 1938 when unemployment was at 19 percent. Even Google, started in 1997, didn't have its first year of profitability until 2001 - the year the dot-com bubble burst.

Today these technology bellwethers are collectively worth more than $500 billion. And yes, they were collectively worth a lot more than that about eight weeks ago.

We live in unprecedented financial times, and it's likely the global economy will get meaningfully worse before it gets better. Startups will be tested, and only exceptional teams with the best breakthrough ideas should consider starting or joining a new company today.

But what can history teach us about starting a company in difficult times?

Market dislocation can create opportunity in these ways:

1. Customers may be more willing to consider disruptive new ideas. When times are good, customers may simply buy more of the same. When times are tough, they tend to zero-base their budgets and challenge every purchase, leaving potential room for new ideas, products and companies. Personal computers and spreadsheets replaced mainframes. Internet ads replaced TV ads.

2. Entrenched competitors may be less competitive and have a legacy business and product from which it is difficult to pivot. Their ability to invest in innovation is often diminished as their balance sheet is weakened.

3. Founders and employees may be willing to take risks to start and join companies as there is less to lose if the prospects at established companies are grim.

Gross domestic product may shrink over the near term, but the best startups discover "substitution" areas where market dislocation is creating opportunity at the expense of sectors that will decline. Recent Q3 2008 quarterly revenue reports show many areas in technology/services continued to grow year over year: Amazon (+31 percent), Apple (+27 percent), eBay (+11 percent), Google (+31 percent), Netflix (+16 percent) and Verizon Wireless (+13 percent), just to name a few. Each of these companies warned of slowing growth, but for a variety of reasons, including the ones I list below, they will likely keep growing.

Consumers may buy discounted goods online at the expense of retail.

Advertisers may buy targeted, measurable search ads at the expense of radio, TV and newspaper ads.

Consumers may drop their land-line phones in exchange for cheaper wireless devices that provide communication utility along with Internet, entertainment and business services.

Families may dramatically reduce their purchases of automobiles, apparel, airline tickets and dinners out, but they may spend more on their existing homes and home-related activities as they save money.

Our portfolio of early-stage investments includes many companies that are leveraging these "substitution" trends in Internet, wireless and ad networks. And we have several companies that offer dramatic cost savings to enterprises in times when that issue is important.

This is a difficult time to start or join a new company, and investors are rightfully cautious. But history teaches that some of the best companies are started in difficult times. Many years from now we will look back on this period as an era that forged great companies. Hang in there.

Len Jordan is a partner with Frazier Technologies, a venture capital firm that has a part-time office in Boise. He can be reached at len@fraziertechnology.com.

Starting Up is a series published on Thursdays. The columns grew from discussions between the Statesman and local tech and entrepreneurial leaders and are coordinated by Julie Howard, a specialist for the Idaho Office of Science and Technology. Reach her at julie.howard@commerce.idaho.gov.

Article written by By Len Frazier - Special to the Idaho Statesman

Edition Date: 11/13/08