Starting Successful New Companies In Recessions

First, my apologies for disappearing for a bit. I was travelling, and then got otherwise distracted.

People have hypothesized that it’s easier to start companies during downturns, because labor, rent, and other resources are cheaper (in economic jargon, the ‘opportunity costs’ are lower). And there have been plenty of news articles talking about out-of-work professionals going into business for themselves.

But here’s a slightly different question—is it easier to start a successful company during a downturn? Not so obvious, is it? It might be easier to start a company, but harder to start a successful one if the economy is weak.

Take a look at the table below, which was put together by Gary Beach, publisher emeritus of CIO magazine. The table, based on the Fortune 500, shows what percentage of top companies were incorporated during a recession (Gary was using Wikipedia’s list of U.S. recessions, which goes back further than the NBER’s list of U.S. recessions).

Based on Fortune 500 percentage that were incorporated into business
during a recession year
Top 10 companies 70%
Top 25 companies 64%
Top 50 companes 52%
Top 100 companies 43%
Top 500 companies 36%
percentage of years that the U.S. has been in recession 39%
Data: Gary Beach

By Gary’s count, the U.S. has been in recession for 39% of its years. Looking at the entire Fortune 500, 36% of them were incorporated into business during recession years, which is no great shakes.

But as we move up to the most successful companies—the ones at the top of the list—the situation changes. Among the top 10 companies, according to Gary, a full 70% were started during recession years.

Let’s look more closely at these top 10.

So this table includes the name of the company; the date that they were incorporated into business (when two companies merged, Gary took the earlier date); whether that was a recession year according to the Wikipedia listing, which Gary used; and then whether it was a recession year, according to NBER dates, which are similar but not identical to the Wikipedia listing.

Top 10 companies
Fortune 500 Date Incorporated Wikipedia NBER
into Business recession? recession?
Exxon Mobil 1911 No yes
Wal-mart 1962 no no
Chevron 1879 yes yes
ConocoPhillips 1875 yes yes
General Electric 1878 yes yes
General Motors 1908 yes yes
Ford 1903 no yes
AT&T 1885 yes yes
Hewlett-Packard 1939 yes no
Valero Energy 1980 yes yes
70% 80%
Data: Gary Beach, Fortune, NBER, Wikipedia

Using the NBER business cycle dates, eight out of the top 10 companies incorporated during a recession year. Not bad.

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