In February 2020, the U.S. unemployment dropped to 3.5%, the lowest it had been in the states in a decade, per the Bureau of Labor Statistics. Fast forward two months to April 2020, and the unemployment rate shot up to an alarming 14.7%. The reason for this unheard-of increase? The COVID-19 pandemic.
The recent uncertainty in the U.S. has created comparisons between the COVID-19 pandemic and the financial crisis of 2008. This week, we looked back at the effect of the 2008 financial crisis on entrepreneurship and how it led to the formation of successful companies, ranging from tech to hospitality and media.
Successful Companies Founded During the 2008 Crisis
Struggling with rent in 2007, Rhode Island School of Design students Joe Gebbia and Brian Chesky knew there had to be alternative ways for people to find hospitality. So, Joe and Brian created a website (airbedandbreakfast.com). They purchased air mattresses to rent out the loft in their apartment eventually.
The first people to use Airbnb were in San Francisco for an out of town convention and opted to utilize the roommate’s loft for $80 a night. Twelve years later, Business Insider claims that Airbnb’s net worth is $38 billion, and co-founder Brian Chesky remains the CEO.
Cofounded by Brian Acton and Jan Koum, WhatsApp is one of the most extensive instant messenger services worldwide, as roughly 1.5 billion people use the platform. The platform is advertisement free as Acton and Koum saw the purpose of their app strictly for, “informational” purposes Koum explained in an interview with Forbes Magazine.
Without any idea of monetization, WhatsApp struggled to generate initial revenue. However, Facebook CEO Mark Zuckerberg saw something in the app that others didn’t and purchased the platform for a whopping $22 billion in 2014.
The app is a must-have for small business owners offering seamless transactions for their customers via credit card. After years of lobbying for capital and receiving funding, Square went public in November 2015 at an IPO listing of $13 a share. Three years later, Square was a dollar short of $100 a share, and Jack Dorsey now has an estimated net worth of $5.3 billion.
In 2006, Groupon founder Andrew Mason was enrolled in the University of Chicago but ended up dropping out after receiving a $1 million investment offer from businessman Eric Lefkoksy. Originally named “The Point,” the idea behind the project was to “improve the online fundraising experience.”
With money quickly running out and not much initial success, Mason shifted, “The Point” to give his consumers buying power. Now, consumers could only access Exclusive deals if they purchased the “Groupon.” This pitch to vendors became known as the “Tipping Point.” With consumers and businesses now both on board, Groupon was born.
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Companies Founded in 2006/2007 That Survived The Financial Crisis
Believe it or not, Spotify was a small-startup out of Stockholm, Sweden, founded by Daniel Ek and Martin Lorentzon. Ek and Lorentzon came up with the idea in 2006 as a response to the world’s growing music piracy issues.
Before Spotify and Apple Music, music-lovers had to download music through Napster, LimeWire, and Pirate Bay. This issue cost the music industry millions of dollars thanks to tons of illegal downloads at no cost.
“The only way to solve the problem was to create a service that was better than piracy and at the same time compensates the music industry,” said Daniel in an interview with the Telegraph back in 2010. After beating out the competition, including Apple Music, Tidal, and Soundcloud, Spotify now holds a prominent foothold in the streaming services and an IPO value of $187.30.
The cloud-based web development series allows users to create HTML and mobile sites for personal and business use, offering both free and paid services. Initially founded in 2006, a timeline on the Wix homepage shows that the platform had 1 million users in 2009 and topped 10 million in 2011. Cofounders Avishai Abrahamai, Nadav Abrahamai, and Giora Kaplan came together with the idea after quickly realizing how difficult and how costly it was to create a website. Today, Wix reports an IPO price of $215.23 a share.
Jonah Peretti, the founder of BuzzFeed, created the concept of a media company about viral events after an email feud with Nike. The idea truly kicked off when Peretti ended up on the Today Show with Nike’s PR director as a result of him sharing his email thread with Nike across the internet.
“How can a student with no context in the media reach millions of people about an issue he knows little about?” said Peretti on the Today Show. Before BuzzFeed, there was no media outlet designed to track viral content, and therefore Buzzfeed became a huge hit. While BuzzFeed remains a private news outlet, Peretti’s net worth is an impressive $200 million.
Before and during the 2008 financial crisis, young entrepreneurs took a chance during unprecedented times and established successful products that millions of people now use daily. Jonah Peretti of Buzzfeed, Andrew Mason of Groupon, and Jack Dorsey of Square all maneuvered the obstacles of founding a business during an economic recession. That fact should be a lesson to entrepreneurs who are unsure if starting a business is possible, given the uncertainty surrounding COVID-19.