A recent Time magazine article pointed out that many people see the recession as a good opportunity to start a new company: "At no other time in recent history has it been easier or cheaper to start a new kind of company. Possibly a very profitable company. Let's call these start-ups LILOs, for 'a little in, a lot out.' These are Web-based businesses that cost almost nothing to get off the groundyet can turn into great moneymakers."
Indisputably, the Internent has fundamentally changed the dynamics of not only starting new companies but also starting up in a recession. If it's cheaper and easier now with this technology, perhaps Web-based firms offer one promising route out of the recession and onto a long-term growth trajectory.
The Internet, obviously, is relatively new. But the underlying story--about startups and recessions and economic growth--is an old one. The very nature of technological change and economic growth is the rise and fall of successive waves of entrepreneurs. The early New England textile manufacturers became an elite whose names (Cabot, Lowell) still today signify distinguished pedigree. Part of the reason Los Angeles became the center of the film industry was that many of the entrepreneurs were driven out of New York by the established (such as they were) companies and individuals. We can replay the same story with FM radio, software, search engines, etc.
A generation of entrepreneurs becomes the next generation's elite, the position of whom is then challenged by newer entrepreneurs. Henri Pirenne knew this; Joseph Schumpeter and his intellectual cousins, the Austrian economists and German historicists, knew this. We are apparently rediscovering it today.
Research we have been working on the Kauffman Foundation, soon to be released, will confirm this broad theme. Recessions don't seem to matter all that much to entrepreneurs--they act as their own economic stimulus package. The most pertinent policy question, then, concerns what actions we should take or not take such that we don't squash the next emergent economic wave.
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