We're In A Recession, Start A Company

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Summary

In many of the major economic downturns in the past, a country like the United States seems to produce a lot of changes in the structure of the economy that comes about due to significant changes in the way “legacy” companies “do business” but also due to many new initiatives to introduce new technologies and to create “new” businesses.

Over the past several weeks, I have tried to pick up on this subject and discuss how people, entrepreneurs, and businesses - including failing ones - are trying to take advantage of the current economic disruption that is taking place and restructure the country.

As the coronavirus pandemic has spread and economic activity has dropped, it appears “the pressure to change grows” and dramatic moves are occurring all around.

Given that there had already been a lot of technological change in the economy, much of it coming from Big Tech and the structure of the “new” Modern Corporation, the battle for the future appears to be really accelerating.

All this “innovation” is taking place within the picture discussed by Matt Ridley, who recently published the book “How Innovation Works” and who depicts innovation as the move into "enhanced forms of improbability.”

In other words, the world is changing, but it is impossible to really know where we are going.

Recession Is A Great Time To Start A Company

This is why the interview published in the Wall Street Journal on Tuesday morning is so interesting.

The interview is with Jim McKelvey, the co-founder of Square, Inc. (NYSE: SQ), a financial-technology firm, which became publically traded in 2015.

The thing is, when he founded Square, Mr. McKelvey knew very little about what he was getting into. He had been frustrated in a transaction he was trying to execute, and, due to this frustration, he began to look into the possibilities of how such a transaction could be completed in another way.

Mr. McKelvey’s advice:

If you’re going to do something that’s never been done, by definition, you cannot be an expert.”
Take if from a glassblower…Mr. McKelvey is a glassblower, computer scientist, and serial entrepreneur…who stated a $30 billion payment company: You don’t have to be.”

This Is The World Of Radical Uncertainty

The world that Mr. McKelvey talks about is a world of radical uncertainty.

In a world of radical uncertainty, we don’t fully know, let alone understand what is going on around us.

This seems to be a little bit different that the uncertainty that Nobel prize-winning economist Paul Romer describes in the Wall Street Journal. Mr. Romer says simply: “Uncertainty is the overwhelming problem.” But, he is talking about a different kind of uncertainty.

In conversations with business leaders in recent days, it’s clear that simple uncertainty, as much as any particular policy or public-health imperative, is holding back the economy. Here are the kinds of questions they are asking: Are consumers ready to venture out in force even if they are free to do so? How does a big business navigate a patchwork of different state and local reopening plans and policies? How do we make mass transit safe enough for workers and consumers alike to return to normal life with confidence?”

But, this is not the same uncertainty that Mr. McKelvey is talking about. This is not an uncertainty that deals with finding “an enhanced form of improbability” the uncertainty the entrepreneur is looking for.

Why Start Something In A Recession?

Mr. McKelvey admits that he is a contrarian. Therefore, starting a business at the bottom of a recession makes a lot of sense.

Why start at the bottom? Well, for one, you may not be employed.

Furthermore, “space is cheap.” And, it is easy to hire programmers. And, people are open to new ideas. In fact, they are looking for new ideas to resolve the problems they are facing.

As far as risk analysis, Mr. McKelvey believes that “risk aversion is a secondary analysis.” You have to think about the timing and you take your focus off of the problems you are trying to solve.

Finally, there are the people that don’t know what their problem is, what they need. And, because of all the disruption going on, their attention is focused elsewhere.

And, it is a time for trial and error. If you are trying to solve a problem, you will not have to have the “best” application you can produce. But, with trial and error, you must keep working on it, version 2.0 or version 4.5 will fit the needs of the customer better.

Oh, and what about money? Personally, I can’t believe all the emails I am getting announcing one conference meeting here and another conference meeting somewhere else. And, these are not cheap, fly-by-night organizations that are putting them on. Angel finance seems to be there. Venture capital seems to be there. Other interested parties seem to be there.

What Is Going On All Around Us

The bottom line is that things are happening and that even more things are going to be happening.

While others are worrying about getting consumers back out into the market and which plants should be re-opened, there are a lot of people out there trying to determine “what form of improbability” needs to be created. This is how the “new” era is constructed.

Mr. McKelvey closes with:

There’s so much other stuff going on—there are no experts anymore. We’re living in a world without expertise, and that’s the world of the entrepreneur, like it or not.”

And, that is the world that we now find ourselves. A world of radical uncertainty in which we have little idea of what paths we are really following.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.