Is it a bad time to start a company?

With the economy in shambles and the outlook for the next couple years looking pretty bleak, is now a good time to leave your safe job to start something of your own?

It depends.

VCs and angel investors are telling their portfolio companies to batten down the hatches and prepare for the worst, which doesn’t bode well. Money is going to be very tight and every company out there is going to have to do some serious belt-tightening. Getting investment is going to be even tougher. Exits are going to be extremely difficult and rare for awhile. We’re going to see layoffs, consolidation, and lots of bankruptcies as companies are not able to raise the cash they need to grow or sustain operations. It’s going to be very ugly.

That being said, downturns can be a great time to start a company, depending on the type of company you want to start. If you want to start something that’s focused on getting lots of eyeballs on the back of millions in venture funding, with little thought of profitability, now might not be the best time. On the other hand, if you’re starting something that truly adds value, has a clear revenue model, and helps individuals or companies be more efficient, then perhaps now is a great time. The key is going to be keeping things lean and understanding that the odds of a fast exit for untold millions just got a lot slimmer.

One practical note: throw a touch of realism into your plans. If you’ve got a great job with good benefits and no savings, now might not be the best time, especially if you have a family to support. Take the next six to twelve months, build up some reserves, build your company on the side, and then strike out on your own if it’s working. It’s very, very difficult to build a startup on the side (I speak from experience), but you don’t want to get into a situation where you quit, it doesn’t work out, and you’re homeless because you didn’t have a safety net and there are no jobs available. Think ahead and think defensively.

Tighten your belt, put your head down, and just keep trudging towards the goal of adding value at maximum efficiency. It’ll pay off eventually.