Startups in a Downturn

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Find Your Passion

Talk to the entrepreneurs who built great companies during bad times, and they'll tell you there are a number of lessons that help explain their success. Atop the list: Founders of the most successful companies are motivated less by the lure of riches than the dream to solve an important problem and benefit the world. As a young, self-taught computer engineer, Mitch Kapor saw an opportunity in the early 1980s, another recessionary period, to create software tools for personal computers that would help businesses be more productive. So in 1982 he founded his own software company called Lotus.

The startup was an immediate hit because it was the first software program to demonstrate the value of a personal computer to the business world. During an October 1982 conference, Kapor showed off his initial product, Lotus 1-2-3, the first software tool to integrate spreadsheets and graphing programs. After taking $900,000 in orders during the conference, he had to tear up all of his sales forecasts. "It was one of the biggest shocks of my life," he recalls. "It turned out there was an enormous latent demand for what we did."

Kapor also noticed that market leaders such as Microsoft (MSFT) had taken their eyes off the ball. In 1981, IBM had introduced its first PC with a 16-bit microprocessor. Microsoft, contracted to provide the operating system for IBM, was also building a spreadsheet, but it was based on code built for machines with slower, 8-bit processors. Kapor realized Microsoft had left him an opening. He set about creating spreadsheet software tailored to the new chips. In 1983, its first full year of business, Lotus sold an astonishing $53 million in software. "If a product meets an unmet need, it doesn't matter if the economy is bad," Kapor says.

Cater to Your Market

Another key lesson is to pick markets strategically, says Umang Gupta, who joined database maker Oracle (ORCL) in 1980 as employee No. 17 and wrote its first business plan. Ultimately, the company wanted to build a database program that would work with multiple types of computers, from minicomputers to PCs to mainframes, those hulking machines that crunched massive amounts of data. But Oracle couldn't do it all at once. It started out creating a database that worked on minicomputers such as Digital Equipment's PDP-11. Then Oracle methodically went upstream, pursuing mainframes next, rather than going for mainframes and PCs at the same time. "We concentrated our bets," says Gupta, now CEO of Internet measurement firm Keynote (KEYN). "We built a culture of an extremely focused, aggressive company."