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 Rebecca Lovell

A girlfriend of mine has a soft-spot for guys with that ineffable “scrappy” quality.  Fortunately when it comes to start-ups, that trait is a bit easier to define.  We’ve all heard (and uttered) advice about how important it is to keep burn rates low and focus on revenue, blah blah blah, so I thought I’d dedicate this post to some news you can use.  In addition to canceling the ski vacation and– apologies to our friends in corporate real estate– officing in that garage for a bit longer, consider the following:

Lean and mean
Delaying hires is clearly one way to keep your burn rate under control, but when it comes to actually reducing it, wage cuts and layoffs are imminent.  I sat on a panel for the WTIA this past Tuesday, and the overwhelming advice there was to just rip the band-aid off; if you make the tough decision to let people go, cut deep and do it once.   Sadly, in the last downturn, I was asked to execute six rounds of layoffs: an unmitigated disaster.  As a manager/CEO, you create an atmosphere when no one is ever happy to see you coming…and more importantly, it’s devastating to morale when everyone is waiting for the other shoe to drop.  In just this specific kind of breakup, “it’s not you it’s me” is actually true.  And for “me,” read the economy.  Undoubtedly, depressingly, lots of talented people will be out of work.  

All 1099’s, all the time?  I interviewed a company yesterday employing this interesting and possibly cost-effective strategy, but I would suggest the following caveats:

  • identify your core competency and keep that in house, and consider contracting/outsourcing the rest on an as-needed basis.  
  • if you’re fund-raising, you’ll need to demonstrate to investors that you still have skin in the game—that the key people are truly committed to making the business survive and succeed, and not treating it as just another contract.

Eat what you kill
Focus on sales—and though you may stop short of first prize Cadillac Eldorado, second prize steak knives, third prize you’re fired,  properly incenting business development could include sales commissions for everyone.

But don’t starve
In 500 companies I’ve interviewed in the last 2-1/2 years, I saw a financing strategy this week that I’ve never seen before.  Kudos to this creative and sophisticated team; they’ve slashed their valuation, kept their existing investors whole, and have been continually and successfully raising money through the last several months.  One financing option they offered was to grant investors a sizable share of profits as the company grew (dividends on steroids, if you will).  Generous indeed, but the concern here is this could attract vultures who would rather extract value and potentially suffocate a company, than work  with them through an exit where everyone can win.   The fanatical focus on revenues shouldn’t be about returning them immediately to your investors, but about building a business that can be sustained through this economy.
 
BTW: Saving money is hot
Sitting on a panel for Austrade with Wayne Embree last week, a group of Australian software CEOs suggested that nothing about them was sexy, when it came to attracting investment.  What I tried to explain was that, in addition to their accents, these entrepreneurs offered something incredibly attractive: significant cost-savings to their target market.  This interview cycle we’ve talked to teams who offer storage, intranet/extranet, communication solutions…core back-office business functions, and all at a significantly lower price.  Now that’s a turn-on.  

Note: The author has found that in every other kind of breakup, “it’s not me it’s you” can be remarkably effective.  

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