In 1987 we had a major stock market crash, ten years later (1997) another correction of the stock prices made us shiver and in 2001, still fresh in mind, the bubble burst, resulting in a vaporization of almost all Internet related stocks. We can say that 2008 is a dramatic year for stocks, but also for the worldwide economy.

We, the people, lost huge amounts of money (wealth) during each and every of these crises, but many people earned their fortune during these bearish times. The difference between a good economy and a very bad one is that during a good economy the wealth of a lot of people increases, during a bad economy Joe and Jane Schmo loose wealth but there are still big winners. You could argue that under certain circumstances the stock market is a zero sum game, meaning that for every dollar won someone else lost 1 dollar (conventional economics state that the stock market is not a zero sum game, it is not easy to understand and goes beyond the scope of this post).

20081114 8i3y3dnbjry9scxcefgjdkfibd Bad economy ≠ no opportunitiesLots of professional traders for example earn money when stock goes up or goes down, the higher the swings the better, as long as the market moves these volatility traders earn money. Lets translate this to the web. We could say that there a loads of companies going after gold but are actually poorly managed, have the wrong/right people in the right/wrong place, or anything else that makes it that a company doesn’t work (the Joe and Jane Schmoes of this world). On the other hand we have some professional traders in the embodiment of professional and healthy companies that know there way around, build stuff that people want and earn money. Those are the companies who have the opportunity to grow and come out even stronger of this

The good things of a bad economy

Employee loyalty
Your employees will love you if you nurture them and can give them security that they can keep their job. As it becomes more difficult to find another job, your employees are more likely to stick with you then to try finding another job at another company.

Fire badly performing employees
First of all a bad economy urges companies to think over their strategy and their right of existence. If you have a company and you have employees that do not blend in very well, the crisis is a good excuse to use to lay off some staff. In Europe it is really hard to fire someone, but during the crisis even that is possible. I’ve heard some companies saying that they don’t need to lay off people cash wise, but do so because if there is a time to say goodbye to some people who are more happy somewhere else, that time is now. Everybody understands it.

Down to earth
Second, companies and their employees get down to earth again and focus on stuff they are good at (and makes money). No more wild and excessive parties, no more buying every gadget we think we need. No more Salmon and caviar for lunch (or is this a bad thing..). The message the economy sends us is clear. Hold your horses and go back work.

Less competition

Third, a lot of companies that are badly managed or are underpricing their services in the hope to get some market share will not make it through the downturn. This is good news if you have a company and have positive cash flows. You’ll survive these turbulent times, you might even come out stronger and you might loose some of your competitors along the way!

Internet services might find new clients

Fourth, I think companies are looking for a way to reduce costs, they’ll go over all costs and might find qualitative equal but cheaper ways to get the job done. In general this is good news for Internet companies (you need to have a good product or service though). A senior manager at Amazon mentioned that since the economic downturn they see an uptake in the use of their web services. I wouldn’t buy Amazon stock in the blind based on this info, but see it as an example how high-quality-low-costs services find new clients.

Buy things cheap
Of course, you need to have cash in the bank, but you can buy stuff or companies cheap now. We saw acquisitions in the banking scene (e.g. the Dutch government that bought the healthy part of Fortis, including ABN AMRO, for less than the price Fortis paid a year ago for ABN AMRO alone). But what about buying Yahoo! for almost 1/10th of the price you’d pay 8 years ago (Apple… maybe). And there are a ton of nifty startups out there that build a sweet service and are up for grabs for the bigger fish in the sea (publishers, wake up I’m talking about your chances here).
Buying companies now allows you to grow and will create you a stronger position after the crisis, if all goes right.

Read also this excellent essay of Paul Graham on Why to Start a Startup in a Bad Economy