Hot talent in a cold market
What options do experienced builders have in a cold market?
I’ve heard VCs say that while many companies get started when markets are hot, the best companies get started when markets are cold. I think investors say this based on their approach to placing bets, rather than speaking to the motivations of top talent when markets cool off.
I’ve always felt you should start a company because you have to, not because you want to. You should be compelled to build rather than move with the crowd, and when you can’t fight the obsession any longer, create the company. When markets are hot, this mindset is rare among founders. When markets are cold, obsession becomes more common.
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In a hot market, everyone takes shortcuts when they evaluate things. For example, in the competitive Bay Area housing market, prospective buyers often need to waive inspection rights and present cash offers without contingencies in order to successfully purchase a home. When VC markets are up and to the right—and investors are often taking shortcuts—founders have to as well. As a result, more companies get started and funded. But as the decision to start a company becomes the default, the evaluation of the actual opportunity and the inherent challenges involved in building a durable business are lost. Too many people raise money to support ideas that aren’t worthy of their talent, usually from folks who are more interested in placing bets than building companies.
On the other hand, when markets get tight, investors and founders take fewer shortcuts in evaluating ideas because startup risks loom larger. In this way, cold markets limit the companies that get started, but economic headwinds disproportionately impact the happiness of the exceptional and experienced builders who are working on hard problems inside established companies.
When markets cool, established companies have to focus on their core businesses and more strictly align resources with near-term impact. Generally, this pressure makes it harder to justify working on new ideas and brings in the guardrails on the most talented folks inside a company. As corporate focus erodes personal freedom, top builders struggle to access the kind of work that’s most satisfying to them. This reality can make the risk of a startup and the challenges of fundraising feel more compelling than the constraints of management (or being managed) inside a large org.
In recent conversations I’ve had with some incredible folks about company formation and the earliest stages of building, I’ve observed frustration among top talent when the focus and culture of a company changes. It’s especially fraught when promising projects are deprioritized and extremely senior people are limited in their freedom to explore interest areas outside of existing roles. For folks who have been in tech for less than 12 years, the recent market cool-down is the first time they have felt truly limited in their capacity to do great work. And while some folks are OK with staying in their assigned lane, the most exceptional people are starting to look inward and create startups around problems they are passionate about. For these people, pausing their work based on shifting corporate priorities is simply not acceptable.
If this sounds familiar, and the market-driven limitations of working in an established company are driving you crazy, let’s talk about a partnership. Now could be your time to build…
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