BUSINESS BLOGS
BUSINESS BLOGS
category: business
29 Oct 2008

It’s amazing how quickly things change.  A few months ago, conventional wisdom was spend, spend, spend… at any cost, even if the direction of the company was questionable.  Scroll down to the end for my rationale as to why this is happening.

Now, even the most war-tested are showing signs of panic.  Via VentureBeat, here are 10 tips from legendary VC John Doerr:

The strategies for muddling through this economy start with these suggestions:

1. Act now. Focus your business, cut what you need, or sell if you must.

2. Protect the vital core of your business. If you have to cut, use a scalpel, not an axe.

3. Get 18 months or more of cash. And do it against a conservative business plan. Plan for the worst.

4. Defer expansion. Delay facilities and capital expenses. Instead of buying PCs or software, use “our technologies,” by which he means, Google Docs (which is free) and similar Web-based back office tools. Reprioritize and rationalize all your R&D.

5. Negotiate. In this climate, everything is negotiable, including your lease.

6. Everybody sell. It’s an honorable profession. Everyone in the company should have a focus on bringing in customers.

7. Offer equity instead of cash. For people who can accept it, offer to swap cash remuneration for shares of the company.

8. Pay attention to where your cash is. Put all your cash into the most secure possible instruments. Money market funds are not guaranteed. Look at treasuries.

9. Make sure you have leading indicators for all your revenues. 90 days is a good benchmark. You want to see the trouble coming before it hits you.

10. Over-communicate. With employees, investors, key customers. Don’t sugarcoat things (and reread tip No. 5).

There you have it, from one of the most legendary VCs out there.

I cannot stress this enough: these apply to “pie in the sky” companies that had dope-induced business plans with way too much money in the bank and no light at the end of the revenue-tunnel.  Then the mortgage market blew up and a sudden, flashing light popped up almost killing them outright.  That light was an oncoming train.  Then the VCs, who supposedly look long, got into a short term mindset and are now panicking and pressuring their companies to act now.
This is getting ridiculous.  Weren’t these guys doling out bad advice a few months ago?

So, why are VCs panicking?  My bet is many of them will end up having their own investors balk from future commitments (if they have any) while others outright ask for their cash back.  This, of course, will lead to lawsuits etc.

The expression “a rising tide lifts all boats” also applies to VCs, who are notoriously bad at identifying good businesses and win when they carpet bomb a bunch of entrepreneurs and startups with money, hoping that one or two becomes hits.

Right now, suddenly the definition of a hit has changed… and VCs know that once they lift their skirts, they have very little to show their own investors, and this is why they are panicking… it’s almost like a domino effect.