Lessons Learned Since The Financial Crisis really brought me back to the time when Financial Samurai was started in the summer of 2009. I want to use this post to figure out why Financial Samurai has survived all these years. My theory is that launching during a downturn has a lot to do with it.
Since I was 12 years old, I wanted to be an entrepreneur because I witnessed the fabulous lifestyles of those who called the shots instead of those who took orders. I just didn’t know what to invent. Back in 1989, you actually had to create a physical product to make money.
My entrepreneurial dreams died down after getting a job in finance in 1999. Only after graduating from business school in 2006 did my desire to start a company reignite. I was emboldened to put all I had learned from my professors to good use. Otherwise, what was the point of going to business school in the first place?
But nothing happened in 2006, 2007, or 2008 because I was tired. After three years of working 60 hours a week while also spending 20 hours a week on business school related activities, all I wanted to do was take a break. It really felt like a vacation to only have to work 12 hour days after graduation!
Only until the world started falling apart in 2009 did I finally decide to launch Financial Samurai. It turns out, there were other companies that were founded during the depths of the recession too: Uber (2009), Airbnb (2008), Quora (2008), Kickstarter (2009), Whatsapp (2010) and many more.
Let me share some reasons why launching a business during bad times is easier.
Why A Downturn Is The Best Time To Start A Business
1) You’re no longer comfortable doing the same old thing. Whether it’s due to fear, disillusionment, or anger, a downturn really motivates you to do something different with your life. When Lehman Brothers failed in 2008, I was finally scared for my future. By the summer of 2009, I felt my career was over because the S&P 500 collapsed even further.
A year before the financial crisis hit, I was promoted to Vice President. I felt like I was on top of the world as a 28-year-old who just bought his second property in San Francisco. Why would I even bother to start something on the side when there was so much upside in my career? It was only when I realized I was standing in quicksand that I had to do something different.
My mind went into overdrive thinking of contingency plans in case I was let go. I had already been aggressively investing most of my savings in real estate to generate passive income, but now these investments were failing. Given I lost hope in the stock market and real estate market, the next logical choice was to go into something completely new.
The easiest thing was to start a personal finance site, something I had been considering since 2006. Back then, I hired a guy from Craigslist for $1,000 to get started. Then I paid him another $500 for design work and more. I clearly remember sitting down with him for a couple hours in my living room to come up with the layout, decision, and original Financial Samurai mask logo. It was exhilarating! Today, you can do everything yourself in under an hour for less than $50 bucks.
2) You’re forced to think more creatively to survive. During the downturn, I had to think of ways to save on my biggest two expenses: food and shelter. As a result, I decided to be more proactive in asking work clients out for breakfast, lunch, and dinner.
Not only would I save money on food thanks to the corporate card, I would also use the outings to build stronger relationships in order to win more business down the road. What went from taking out a client once a week on average turned into a 3-4X a week. Instead of paying $80 a ticket to go watch the Warriors or Giants, I invited clients out instead.
As for saving money on shelter, not only did I refinance my mortgage a couple times between 2008 – 2010, I also found a tenant for our ground floor garden room. These two moves freed up about $2,000 a month in cash flow, which was a significant ~30% savings.
Regarding Financial Samurai, it became obvious there was a personal finance hole to fill regarding writing content about making more money through investing. All of the largest sites at the time were focused on saving money. Therefore, the opportunity was ripe for someone who worked in finance, got his MBA several years earlier, and loved to write about investing to meet this demand.
3) Making adjustments is much easier. The bigger you are, the larger you fall. I remember getting my bonus slashed by 50% in 2009 and my boss told me something funny at the time.
He said, “You should be lucky you make so little. I make so much more money than you and getting my bonus cut by even 30% hurts so much more!”
Uh, thanks boss! I wasn’t happy to hear this at the time, but I understood what he was saying. During the last financial crisis, we came as close as ever to catching up to Warren Buffet’s wealth. Now even Warren is poor compared to Jeff Bezos.
Because the largest companies have the most to lose, they often become distracted by organizational issues during tough times. While big companies are having constant HR meetings about which department to cut the most, small companies with little-to-no overhead can nimbly jet ski away from the impending tsunami.
Although I didn’t see Financial Samurai as a business when I started, by the time I left my job in 2012, I figured I could do well positioning this site as a financial independence site that focused on living one’s best life through wealth creation rather than through frugality. After all, I was 34 when I left work and was hell-bent on growing my net worth after.
I wanted to take the harder, but more rewarding route of achieving financial independence. Negotiating a severance versus quitting is one such example of taking the harder route that made Financial Samurai unique. Confrontation is hard, which is why most people just quit. But by approaching things differently, Financial Samurai was able to grow.
The rise of financial technology companies (fintech) is precisely due to the financial crisis. Large financial institutions became handicapped through overregulation, stubbornly high fees, and legacy businesses that dragged down profitability.
4) Labor is plentiful and cheap. The biggest problem CEOs face in the San Francisco Bay Area today is a dearth of talent and expensive labor. Due to the high cost of living on the coasts, I’m confident there will be a multi-decade migration trend towards the heartland of America. It is absurd that earning $200,000 a year is nowhere close to enough if you want to buy a median priced SF home by yourself.
When the unemployment rate hit 10% in 2009, you could hire people for half off. You could probably get a horde of people to work for you for free since people were desperate to keep their resumes fresh. When people are hungry and desperate, great things tend to happen.
5) People who are different or think differently have greater opportunity. When things start breaking, people begin to question the status quo. It’s easier to become more receptive to new people with new ideas.
Back in 2009, there weren’t a lot of minorities with finance backgrounds living in a coastal city like San Francisco or New York writing about personal finance. As a result, it was easier to stand out. All I had to do was not write an article about how to save $10 a month on food and I was good to go! OK, it wasn’t that easy, but you get what I mean.
Today, the financial independence community has gotten slightly more diverse. It’s a little harder to come up with new takes on timeless subjects. That said, the community is still very homogenous. The same people get interviewed by big media because big media is still very homogenous. The same people win the same awards and scratch each other’s backs because they look and think alike.
I’d love to see a non-Asian, non-white, non-male version of Financial Samurai flourish over the next 10 years. If nobody decides to fill these holes, I’ll figure out a way to do it. But alas, it’s hard to break away from group think when times are so good!
Take Advantage Of Complacency
The biggest thing you must guard against during good times is complacency.
Complacency is why our bellies get bigger the older we get. Nobody has time to work out when it’s steak dinners and caviar every night.
Complacency is why some people get financially destroyed during a recession. They weren’t staying on top of their finances because they thought the good times would last forever.
Complacency is why bad apples are able to join great companies. Hiring managers didn’t bother to screen their candidates like the CIA because they’re either desperate for labor or they think their product is so good that people don’t matter as much.
Complacency is why some folks wake up 10 years from now depressed that their lives are still the same. They just assumed someone would save them.
Be very careful about letting a bull market lull you into a state of inactivity. Let the big companies with their multi-billion dollar balance sheets stop innovating. Let empire builders try and digest their rivals at record high valuations.
The second best time to start a business is when times are good. Capital is plentiful and the propensity for consumers to spend is at its highest. Just look at on-demand scooter businesses that have become billion dollar companies overnight. Set aside at least an hour every week to brainstorm. Work on your business or side hustle before or after work.
You don’t have to have everything ready to go. Just come with an imperfect product and keep iterating. If the downturn ever hits, you’ll be so far ahead of the competition.
As for me, I’ve been working on a couple new initiatives. When you’ve got another mouth to feed, it’s very hard to slack off!
Readers, any business ideas percolating in your head? With the invention of Etsy, Amazon dropshipping, and the ease of starting your own website nowadays, why aren’t more people taking advantage of the internet? Have people become too complacent with their jobs?