Does economic hardship create innovation

NYTimes: Over 50% of the Fortune 500 were founded during a recession or bear market....

I'm not sure what this tells us. I mean, the company at #500 on the list is a $4.6B business, Legg Mason, a company founded in 1899, just a few years after the 1893-1896 recession. It's likely that Legg Mason was 'founded' during the recession or bear market, but that's probably a function of the length of the recession which lasted 3 years. Recessions lasted longer back then (3, 6, 9 years). In contrast, the longest recession after 1939 lasted a mere 22 months (in 1981-2). And the '91-'82 recession was fairly painful. Imagine how painful a 6-year recession would be. And how much innovation that would create, right?

The point of the article is to encourage people to start up new businesses now. Now could be the best time to do it. However, it's not clear what the cause-effect relationship is. Even if you accept the implication that recessions yield the right environment to create new businesses at a disproportionate level, it's not clear that short recessions today will generate the same number of start-ups that grow large enough to make the Fortune 500.

I agree that now is a great time to start up a business, but not for the reason cited by the NYTimes. I would say with certainty that the time is always right to launch a start-up for a good idea and solid business plan, regardless of economic conditions. Entrepreneurs and Intrapreneurs are always looking for opportunities to launch new businesses, again, regardless of the economy.

Many times during my years at HP where I launched 5 businesses that generated nearly $1B in revenue, there was an investment pullback that was followed a few quarters later by a new growth strategy. For example, after HP and Compaq came out of the 2002 merger process, there was a clear shift of the pendulum in 2003 from cost reduction efforts to revenue growth. Fortunately, I anticipated the pendulum swing and worked on new business ideas during the slow down. This meant I had a well-developed business plan for a new venture ready when there was funding available in 2003.

I believe that recessions create the environment to launch new businesses at a higher rate than during good times for the following reasons:
- corporations reduce internal investment, making room for start-ups to pursue opportunities the big companies rejected
- top talent leaves large companies and joins or launches start ups, thus giving them valuable experience that increases the odds of success for the start up
- investors aggressively seek higher returns than established companies generate during downturns
- systemic problems become apparent during downturns, encouraging innovation with this new-found insight(this is the 'Monday morning quarterback syndrome')

For these reasons, this is as good of a time as any to launch a new business or join a start-up -- probably with higher odds of success than any time in history.