Recession is the mother of invention

Necessity is the mother of invention, at least when it comes to the conception of technology companies. Many of America’s biggest names in the technology world were born or rose to prominence in downturns, from Cisco and Hewlett-Packard to Apple and Google.

The harsh economic winds that blew in the 1930s, 1970s and 1980s — and the disappearance of capital after the dotcom crash at the turn of this century - blew away many old ways of doing business, clearing spaces for new companies to spring up.

Finding themselves laid-off, many experienced workers decided to set up shop on their own, often bringing to fruition projects they had been working on within large organisations. At the same time, the next generation of bright young things discovered that the traditional job market was closed to them and struck out on their own.

Bill Hewlett and Dave Packard, for instance, emerged from Stanford University in 1935. Either man could have found themselves within traditional American business had it not been for the Great Depression but instead they set up business in a Palo Alto garage.

A garage just to the north, in Menlo Park, meanwhile, played host to another pair of Stanford graduates, Larry Page and Sergey Brin. Their company, Google, was up and running in 1998 and got its only major round of funding in 1999 when the dotcom boom was still in full swing. But its rise to global web domination came between 2001 and its $23bn flotation in 2004 when its potential rivals were scaling back or disappearing in the dotcom crash.

The aftermath of that crash also saw the creation of Facebook and LinkedIn.

But taking advantage of the so-called creative destruction of a recession requires not just innovative minds with good ideas, but investors with vision.

One name that often appears in the U.S. when it comes to injecting cash in a downturn is Sequoia Capital. The venture capital firm put $2.5m into a telecoms start-up called Cisco just a few months after the 1987 stock market crash. Thirteen years later the dotcom boom would take the company’s stock market valuation to half a trillion dollars.

As the recession of the 1970s was cutting a swath through middle America, California’s Silicon Valley experienced rapid growth with companies such as Atari and Apple appearing on the scene and helping to create entirely new markets. The 1970s also saw the creation of Oracle, which received its first major cash injection from Sequoia in 1984. — © Guardian Newspapers Limited, 2009

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Printable version | Sep 22, 2020 10:47:37 PM |

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