Starting a business in a recession

What kind of nutcase launches during a downturn?

By Alexander Stein
Featured on Fortune Small Business

(Fortune Small Business) – Would you consider launching or growing a business in the midst of the Great Recession?

Some would applaud your courage; others might think you had a few loose screws. And yet economic downturns have often been fertile ground for innovation and entrepreneurship. More than half the companies on the 2009 Fortune 500 list were launched during downturns, according to recent research by the Kauffman Foundation.

Economists offer many reasons for this phenomenon: Corporate layoffs release entrepreneurial talent, the decline of old industries creates opportunities in new ones, and so on. Still, recessionary entrepreneurship is not an easy game. What does it take, psychologically, to pull it off?

Jim Kremens, 42, runs a New York City-based software startup called Fhtml. His product, Fluid HTML, is a Web markup language designed to be an alternative to standard Flash animation. He plans to exit stealth mode this fall. Although Kremens has secured buzz, startup capital and encouraging responses from top-tier companies, Fhtml’s success is not assured, especially in this brutal economy.

“I’ve been working on this project for a long time,” he told me recently. “It evolved into something very real and more powerful than I originally thought. Entrepreneurs like me have to think we’ve got some kind of game changer. That belief, valid or not, drives innovation.”

The impulse toward distinction and accomplishment is very powerful (although its psychological sources are different for everybody). Under the right circumstances it can help entrepreneurs turn inspiration into reality.

If it were that simple, mind you, Edisons and Bells would be a dime a dozen. “This is a high-risk endeavor,” Kremens says. “It’s frightening to come home to my kids and wonder what I’ll do if this doesn’t work.”

Yet Kremens finds the challenge energizing. Why? Like other pioneering entrepreneurs, he combines ambition, optimism, fortitude, resilience and confidence. At the other end of the spectrum, however, you find entrepreneurs whose personalities prevent them from capitalizing on the opportunities that all economic crises create.

Paul F., 37, owns several high-end fitness centers in the Baltimore-Washington area. (I’ve changed his name and other identifying details here.) Paul was looking to add locations, as prime real estate was plentiful and affordable and construction costs were low. But his customers – mostly white-collar professionals — were cutting back or searching for work. If he built, would they come? Paul couldn’t make up his mind, and as a result his expansion plans were going nowhere.

This would be a tough call for any business owner. For Paul, however, there was more to the problem than calculating risk and ROI. A champion high school and college athlete, he felt that the initial leap from sports to business was trivial.

“I train hard and play to win,” he told me during our first consultation. “This field just uses different muscles.”

Paul had no trouble making tough decisions before the recession. Why was this decision different? The economic crisis brought out the powerful dread of weakness that lurked beneath his muscular bravado. Where did it come from? When Paul was seven years old, his father, a successful Ivy League-educated financier, suffered a debilitating mental breakdown. Feeling sad, betrayed and angry, Paul vowed never to become like his dad.

Problem is, you can’t try not to be like somebody (psychoanalysts call this “disidentification”) without always keeping that person in mind. When Paul tried to be decisive and powerful, he was actually trying not to feel weak and stuck — the way he felt when his father collapsed. In sports, relationships and business, that impulse drove him to create artificial crises in which he could make decisions that would help him feel powerful. In this case Paul faced a real economic crisis and a real opportunity, and he didn’t know what to do.

This story ends well: Paul mustered the strength to acknowledge his weakness and reach out for professional help. By the way, don’t underestimate how hard this is. Confronting unconscious obstacles, then changing patterns and responses, is seriously tough.

My Recommendation: Remember that not all your business to-dos are about doing; understanding why is equally essential. Next time you’re at the proverbial crossroads, think about what I’d be asking you: What’s really happening here, and why?

Oh, and Paul’s fitness center business? He decided to expand.

Alexander Stein, Ph.D., is a practicing psychoanalyst in New York City and a principal in theBoswell Group, a consulting firm.