Editor’s Note: This post was originally published on Seattle 2.0, and imported to GeekWire as part of our acquisition of Seattle 2.0 and its archival content. For more background, see this post.
By Matt Hulett
You are going to hear a lot of advice on how to bunker down for the next several years. So, by now, you have read the infamous 52 slides of doom from Sequoia Capital. If not, you can check out the slides and the blog, Force for Good, posted with some great notes, too. I am not going to write one of thousands of posts on the current mess that the world is in right now. If you are looking for that, I would recommend everyone listening to this fantastic 1 hour podcast from NPR’s This American Life. A friend passed it over to me and it does a fantastic job of winnowing down all of the issues into a digestible format.
Now that I am done with the housekeeping portion, I really want to get to the premise of this post: how startups will NOT die. This could be a fantastic time for you if you have done the prerequisite things to prepare. Consider these recommendations:
1. You can bootstrap startups – I don’t want to sound dated here but it used to be a lot harder to launch startups. Everything is cheaper now: storage, bandwidth, etc. Plus, the cloud-based services and APIs that are available now enable you to build things much more quickly. You can do a lot with $100K or less.
2. Good ideas get funded – Great companies can get funded in this downturn, but it’s going to be damn hard though. Ben Elowitz did a post several months ago on the Startup Whisperer about raising money. If you re-read that post, all of the tips apply but what has changed is the number of investors that you are going to talk to. I saw a recent post on GigaOm that highlighted an entrepreneur with a great track-record needing to talk to 120 investors! 120! Every situation is different. I have had a lot of friends call me who are in the midst of their different rounds and are lamenting about the difficulty. Plus, entrepreneurs should all know that your window for a term sheet this year is closing quickly. It’s hard to get anything done after Thanksgiving. So bottomline, it’s hard but not impossible right now to get funded.
3. Less is more – If you have kept your team small, then you have lots of options. One of the things that happens in downturns is that everyone really likes their jobs a lot more. If you have built a close knit team that is passionate around your vision, you have a major weapon against other startups that have either built up crazy high valuations or are too bloated (and will be running out of money). It is really hard to shrink your burn or valuation versus building a small team that can scale commensurate with the growth in the business.
4. Focus is your friend – when times are tough, necessity will drive you to focus on a core set of initiatives. When you are building your product, make sure the functionality maps directly to those initiatives. I talked about that months on The Whisperer and there’s a handy chart in the post that might be helpful. On a personal note, I always find it useful to be quantitative when evaluating your initiatives, otherwise, it’s too easy to be persuaded that building “cool” stuff is the appropriate response. It’s a good day when your CTO challenges you in a meeting that your proposal is not delivering the appropriate ROI. The nice thing about startups is that you are a fast mover. You can sit down and do a strategic planning session on a Monday and on Tuesday you’ve been able to change direction. You can use that to your advantage.
5. Stop listening to people – everyone that you talk to external to your company is going to have lots of ideas about what you should be doing. Heck, even now you are reading a blog post from someone that is not affiliated with your company. In times like these, I find it best to bunker in. Figure out what you have. Answer the following questions: what are your strategic goals, what is a pragmatic forecast, and what is your core proposition to your customers? Listen to your investors and advisors but also use their opinion in doses. At the end of the day, you and the team are building a business. Everyone is going to give you the same advice: raise the capital that you can, preserve your cash, and focus. The hard part is to determine what business that you have and how you are going to execute against the agreed upon strategic plan for you business.
One of my favorite Zen quotes is “Before enlightenment; chop wood, carry water. After enlightenment; chop wood, carry water.” Do the same. Before downturn; build a great business, become profitable. After downturn; build a great business, become profitable.
