Jason Calacanis - who supposedly stopped blogging - pontificates on the fact that the economic meltdown will kill 50-80% of startups. Jason has his boosters and his denigrators, I do not know him enough to know which side I would be on. But I would add some comments:
- Over 90% of startups fail, period, even in good times; so right off the bat, I am scratching my head wondering what he is referring to: 50-80% of otherwise successful startups, perhaps?
Not sure. Regardless, I think that is bull. The easiest time to succeed in startup-land is precisely when the shit hits the proverbial fan. Why? If the measurement of success for a startup is either:
a) attaining cash flow positivity
b) realizing a successful exit
c) becoming #1 (or #2) in your market.
Here are 10 things I recommend you to do:
1 - VCs will put more pressure on profits, hurting company’s ability to operate
Speaking of venture-backed businesses, it’s worth noting that as I outlined in a previous post on what kind of companies recently-laid off firms need to look for, VCs gladly pick up the tab in good times, but when the going gets rough, they bail before the bill is even at the table. As such, VCs will be putting more pressure on startups to become profitable all the while making bad decisions which trickle all the way down.
If you raised a ton of money, tell your Board to back off and stand behind you. Not in front of you and not beside you, but behind you. Otherwise, ask yourself if you want to be their CEO.
If you were smart and did not raise a ton of money, the coast is clear. All you need to do is move the ball down the field. Why? Read on.
2 - Fat management salaries will weigh and slow down company’s execution
When those same VCs come on board, the quickly brush off the heart of a company’s momentum and stamina and bring on the adults that they are comfortable with. However, these come with expensive salaries. However, as older brass, they are less willing to work startup hours. This behavior is acceptable in boom times where rising tide lifts all boats… but when the going gets rough, this type of person wishes to be back in more established companies. Not only do they start to polish their resumes and lose focus on their startup employer, but their burgeoning salaries weigh down a company’s path to profitability.
However, their mere presence hinders younger employees’ desire to grab the bull by the horns because, well, VCs parachuted these older guys in the room… adding insult to injury, the same VCs that supposedly know how to build businesses, ended up showering these guys with gray hair with too much equity… which takes time to vest… meaning that they will hang around long enough to score some shares as the company starts to stall. This all creates a state of paralysis while leaner companies begin to outperform these VC backed firms.
3 - Invest in hungry talent
We’ve been seeing a flood of resumes, job inquiries. Test people before committing long term, don’t be shy to ask for more. But, don’t step on people either, don’t waver in the respect you afford to others, particularly employees and clients.
4 - Corporations get trigger shy
You would figure that companies learned from their mistakes of 2001-03: those who invested and got more aggressive were better positioned than their peers who did nothing. Yet we simply do not learn from history, and companies with deep pockets scale back, too.
5 - Your competitors become your clients
A funny thing happens when times get rough. Companies that had raised money to bury you all of a sudden realize it’s wiser to tone down the belligerent rhetoric and start to make overtures… seeking to a) partner with you, b) pay you for your products or services or c) outright merge with you or acquire you.
6 - Undercut others on price, retain on service and quality
Once you give something away for free, people put a value of $0. However, so long as your costs have been kept in check, then you can win business on lower prices. Once the business is secured and relationships secured, you can start to leverage pricing power and charge more.
7 - Content Prevails
Regular readers know my thoughts and bias on this, but here is a simple fact: in both good and bad times, people consume content. In bad times, however, people push off technology investments because they know they can score a bigger deal a) right before the end of the quarter (when software salesmen want to hit targets) or worst yet b) “next week”…
8 - Cash Flow is King
Some say now is the time to go out and raise money. Huh… no. It’s hard enough to raise money in good times, it’s impossible to raise it in bad. It is also a distraction. Listen, if someone calls you and says “here’s a check” then yeah, sure, maybe you should listen. But realistically, focus on revenues, reducing costs and hitting break even.
9 - Focus on winners
I am not saying you should drop all non-revenue generating units… but I for one have not spend much time in ages on our search engine, database marketing products, I am even blogging less… however, I am spending so much time reading business deals, signing clients and partnerships and growing the main business: WatchMojo.com. Might want to note, when I am blogging, it’s on the soap opera known as Election 2008 on WorldMojo.com.
10 - Study history, analyze previous winners.
Sounds simple, no?
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