Why the demise of companies is a good thing

Sprouting mushrooms

This week, the NASDAQ index and major international stock exchanges had one of the biggest corrections since the financial crisis in 2008. If you are invested in the stock market it probably hit you hard in your 401K. (Note: If you are really into investing, I absolutely recommend Howard Marks book on mastering the market cycle. Street smarts by Jim Rogers is also a good read.)

Nobody can really tell what the cause of the sell-off was or whether or not it will continue. The only thing that is clear is if we slide into a recession in the coming months, many companies will close. We can actually pin point which companies will have a hard time. It's those which haven't gone profitable during this credit expansion and have to live of external funding right now.

Some names that come to mind are Netflix, Twitter or your recently funded startup in San Francisco which hired another 20 people the last 90 days. These companies live of credit. They have no means of sustaining themselves. This brings a huge hurdle in the future if the economy goes down and credit freezes up. Not only does credit freeze up, but unemployment will rise again, wages will go down and people will spend less.

One of the biggest expenses for companies are employees. To survive, they will inevitable fire numerous people to stay afloat in case no new funding can be acquired. This is in turn will stifle innovation and make things even harder. Naturally, there will be funding for giving up appropriate amounts of equity but as the CEO and founder, why would you give up a huge chunk of your ownership especially if the company is your life and blood?

It's rare to find companies that still exists which started in 1998, 1999, 2005 or 2006 because the chances of surviving an economic downturn are very slim if you aren't profitable yet. The only thing that I know is that most companies today either started right after the tech bubble in 2001 or after the financial crisis in 2008.

But, the good thing about all these companies and start-ups going down is the fact that new opportunities will emerge. It may even be that my katakana to english converter will take of. No, I'm just kidding but my by kanji mnemonics site may have a chance or my website for finding remote employment opportunities. Who knows. The only thing that you should keep in mind is that right when things look the worst, the best opportunities will emerge. So, your little idea of competing with Google might actually have a chance and always think positively (not like this post or the media generally do).

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