GERGEN & VANOUREK: Starting up in a downturn

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By Christopher Gergen and Gregg Vanourek

The natural tendency in today's economic climate is to hunker down and wait for the storm to pass. What can we learn from entrepreneurs who have taken a different approach? Quite a bit.

Through a series of 55 interviews with successful entrepreneurs for our book "Life Entrepreneurs," we discovered that several started their companies either right before or during a recession. Take, for example, Clif Bar, Chipotle, Cranium, Hanna Andersson and Honest Tea. In each of their stories, we can deduce important lessons about starting up, surviving and thriving.

We can look to Gary Erickson from Clif Bar, for instance. The idea for developing a natural-tasting energy bar came to him during a 175-mile bike ride after he had consumed five energy bars.

Recognizing that he couldn't "eat another bland, chewy energy bar," he turned to his buddy and announced his intention to create an alternative. Never mind that it was November 1990 -- four months after the official beginning of a recession. Living in a garage while working full time for a local bike company, he recruited his mother to help him develop the right recipe.

Because he launched during a downturn, he was able to attract manufacturers and other partners that were hungry for the business, including a bakery with all the right equipment.

By keeping his costs low, he could focus on starting up rather than meeting payroll. Clif Bar (named after Mr. Erickson's dad) shipped its first 30,000 bars to distributors in February 1992, and sales took off. Within the first year, the company did more than $700,000 in sales, hitting $1.2 million the next year. Today, the socially responsible company is earning more than $200 million in revenue.

Maryland-based Honest Tea was launched in the late '90s, shortly before the dot-com crash in the winter of 2000. While starting the company, co-founder Seth Goldman and his wife were expecting their third child, and he knew he would have to cash out their personal savings to get started.

As he recounted, "I said to myself, 'You know what? This is the wrong time to do it, but there is never a perfect time. We have the right idea, and I've got to try.'" With his wife's support, he launched Honest Tea out of their guest room, and he became "TeaEO." Five weeks later, after brewing countless batches of tea in their kitchen, he booked a meeting with Fresh Fields (now Whole Foods) and arrived with a few borrowed thermoses, a mock-up for a label, and a pitch about how there was nothing like it on the shelves. Fresh Fields ordered 15,000 bottles - which Mr. Goldman delivered 50 cases at a time in a rented truck.

With resourcefulness and fiscal discipline honed in tough times, Honest Tea grew organically, relying predominately on its own cash flow for expansion. This year, Honest Tea will sell about 20 million bottles, and it recently sold a 40 percent stake to Coca-Cola, further fueling its growth.

Downturns can breed opportunities for both personal and professional growth. Times like these also can bring new opportunities for "countercyclical" enterprises such as education, temp services or energy-efficiency consulting to the surface. They also can help entrepreneurs rally their teams to a greater sense of accountability and purpose for the important work ahead.

This doesn't mean taking unnecessary risk. In fact, Mr. Erickson's and Mr. Goldman's stories illustrate the important lesson of "living lean" -- living well within our financial means to ride out tough times and free us to seize opportunities as they arise.

By starting out scrappy and learning to get by with less, entrepreneurs develop creative survival techniques that pair discipline with resourcefulness.

Instead of wringing their hands when times are tough, these entrepreneurs find opportunity in challenge and come out stronger because of it.

In these times of uncertainty, it may be hard to believe that being entrepreneurial can be an exciting option. Indeed, without a strong idea and a clear strategy for success, the odds against it will be overwhelming. No doubt these are tough times.

However, by living lean, staying primed to new opportunities and taking action when opportunity warrants, we can transcend today's painful reality. Surprisingly enough, the downturn may turn out to be an opportune time to launch that start-up.

Christopher Gergen and Gregg Vanourek are founding partners of New Mountain Ventures, an entrepreneurial leadership development company. They can be reached at authors@lifeentrepreneurs. com.