At 22 years old, Michele Romanow, now chief executive officer of investment firm Clearco, was running a caviar brand – selling what she has called one of the “world’s most unnecessary luxury products” – when the Great Recession hit in 2008.
“I had done all this planning for a caviar business… and then it was like, ‘Okay wait a second. The market is not going to want this’,” Romanow said at an interview with Yahoo Finance Canada at the 2022 Collision Conference.
“I had to say, look, no one is going to buy caviar. I’m going to have to figure out something else.”
Romanow had to shut down that business, but she said it taught her that the companies that are able to change and adapt the fastest to changing market conditions are the ones that will ultimately succeed.
It’s a lesson that may prove useful to entrepreneurs in 2022 who are facing an economy that includes persistently high inflation, rapidly rising interest rates, and ongoing geopolitical tensions that have created worldwide impacts. Romanow says while it may seem like a “super scary environment”, there are opportunities to build great companies through challenging times.
“My advice is remember that great companies were built during recessions,” she said.
“Uber, Airbnb, Groupon all came out of the last recession. So it’s actually a really good time to build, it’s just a time where you’re going to have to think about doing a lot more with a lot less.”
Romanow says in recessions the cost of talent and goods typically declines, making it possible to build at a lower cost. She also points to other funding opportunities, such as partnering with private equity firms, that could open up in a downturn as the amount of venture capital dollars available declines.
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.
ALICJA SIEKIERSKA: But you mentioned on stage today--
MICHELE ROMANOW: Yep.
ALICJA SIEKIERSKA: --that it feels a lot like 2008 right now. What did you mean by that?
MICHELE ROMANOW: I graduated at a time that was very scary. I had started a business, I watched the fall, and a little bit of this feels like you're in freefall, right? The market's down 30% right now. And we're not sure what's going to happen, because central governments don't have a lot of tools right now. We have inflation that's being driven by a supply crisis.
The natural solution to that is print some more money, but we've printed so much money, that's not a tool we have. And so really, central governments are going to be left with just increasing rates right now. So I think for founders, the first thing is to step back and remember that incredible companies are created in a recession. The cost of talent is less, the cost of typical goods are less, and that makes it totally possible to build something. But it is a super scary environment, because capital used to be abundant and cheap. And we've really seen that change.
ALICJA SIEKIERSKA: And we haven't actually-- the tech world hasn't really seen that in a long time. You could even argue that in 2008, it wasn't hit as hard as other industries were.
MICHELE ROMANOW: Yeah. It's really been since 2001. So we have seen at least a 13-year bull run in the markets. And so that really changes things. At Clearco, we do revenue-based funding. So we saw our single best month ever in May, because the decline of VC has been so drastic that people are looking for other capital options to fund their business.
ALICJA SIEKIERSKA: So do you see a lot of opportunity actually coming from an economic downturn and a potential recession?
MICHELE ROMANOW: I think what we see as an opportunity is the mix of capital will change. I've always said VC is very, very good if you need to hire 20 engineers or 100 engineers and put a rocket into space. That's true zero-to-one risk. But there's so much of the things that we spend in a business that's ads, or inventory, or different things that you should be funding with way cheaper capital. And I think that allows founders to both retain more of their company, and it's going to be the capital that's easier to get in today's environment, just like private equity dollars are going to be easier to get today than they-- now that VC has declined.
ALICJA SIEKIERSKA: Yeah. And so let's go back a little bit to 2008. You were a 22-year-old entrepreneur at the time, running a caviar business on the cusp of a recession, selling a luxury good at the time of just about decline. What were some of the lessons that you learned from that time?
MICHELE ROMANOW: I think I had to learn-- so I've done all this planning for this caviar business and this big business plan where it's successful in starting it up, and then it was like, OK, wait a second, this market is not going to want this. It's ultimately the companies that change and adapt the fastest to the market that are the ones that succeed. And so today, founders have to do things very differently. They have to think about, how do I do things for free, or the lowest cost possible? How do I build the most efficiency?
Investors are not looking for growth-at-all-cost companies. They are looking for companies that are very close to profitable. And so in 2008 I had to say, look, no one's going to buy caviar. I'm going to have to figure out something else. And we started selling deals online with Buytopia.
And that was a very good market, because people had less money. They cared a lot about savings. Small businesses still wanted people to come in their door. And so it's really about changing to what these economic times are going to need.
ALICJA SIEKIERSKA: And so what's your advice to entrepreneurs who are looking at starting a business right now, seeing what's happening in the market, and with interest rates rising, perhaps feeling a little bit scared or intimidated to launch a company now? What's your advice to them?
MICHELE ROMANOW: My advice is remember that great companies were built during recessions. People are so willing to change their habits and try new things to save money, or to be more efficient with their time or their life. And you can just look at the statistics. Uber, Airbnb, Groupon all came out of the last recession. And so it's actually a really good time to build. It's just a time where you're going to have to think about doing a lot more with a lot less.
ALICJA SIEKIERSKA: So we're here at this conference in Toronto. You've spoken to Canada's innovation minister about Canada's role in the tech world. What do you see as some of the challenges in terms of fostering innovation and making sure that Canadian-grown companies remain in Canada, and that the tech space remains strong through what could be a challenging time?
MICHELE ROMANOW: I think two things will be a critical factor. The first is continuing to get funding into Canada. I mean, this was a huge problem 10 years ago, where every great company had to go to the US, and had to go to other places. So continuing that funding and that growth capital so that we can continue to build more unicorns here, I think, is critically important. And then the second thing that backs that up is the talent pipeline to do that.
So you think about it, we have a handful of unicorns. When you're looking for something like a CFO, how many can you find that have done this journey before? It's actually very few. I used to hear this, and I used to think it was so silly. Of course, there are great people in Canada. And it's not that there aren't great people.
It's-- are there great people who have done and seen this road before? Which is very different. You want to have someone who's seen all of the mistakes you make at this phase, try and prevent those, and really, really grow. And so I think those are the two critical things in Canada. Getting it right, and then realizing that so many companies are going to have to adapt to this remote world as well. And so that's going to bring a lot of opportunities for Canada, and also some risks.
ALICJA SIEKIERSKA: And so what should the government's role be here? What do you think they can be doing to help foster this growth?
MICHELE ROMANOW: I think funding is a big part of it. I think when governments have had great programs where they match what VC funds or they matched with other funds are putting into the market, they don't play the role of the investor but they typically double the size of the book. I think the second thing that the government's done really well-- actually in VC-- is angel investor tax credit. So they actually start to build an ecosystem, because there's a tax credit if you are a founder that is angel-invested in a company.
And then continuing to build a very competitive economy, so that people want to grow and stay in Canada as they build their careers. So that's a more general thing around every part of policy, but those, I think, are the major things that are going to matter for Canada in this next phase.