There are a lot of things that can muck up a startup — bad hires, improper focus or expanding too quickly.
But there’s one thing that alleviates much of the pain that can accompany the startup journey. Call it the perfect antidote to a downturn.
That was the sage advice passed on by Pete Higgins, the former Microsoft executive and founding partner of Second Avenue Partners who was one of the speakers at Thursday’s Angel Capital Association’s Northwest Meeting in Seattle. (I moderated this panel at the event.)
During the 50-minute panel discussion — much of which centered around the softening climate for startup investing — Higgins laid out some blunt advice.
“90 percent of the time it is about sales, right? And people want to talk to you about strategic relationships and positive spin and a great article here and there or a great pipeline. It is all garbage,” said Higgins. “It is about people you don’t know and didn’t go to college with actually buying it — for real money.”
Higgins, an early investor in startups such as Seeq, Modumetal and Wiserg, said too many entrepreneurs forget this very simple advice as they build their companies.
“That is where you fail. You confuse yourself with all kinds of other stuff, and it ties back into the earlier comment,” he said. “That is where the rubber meets the road when you are trying to get follow-on financing. Do you have a reproducible sales model? And almost nothing else matters. I am overstating a little bit, but it is amazing how people underestimate that, and want to confuse the issue with all kinds of other topics.”
BuddyTV CEO Andy Liu, an angel investor who has bankrolled about 90 startup companies, added that he’s always amazed at how startup CEOs absolve themselves from the sales process.
“It drives me nuts. You are CEO. You should be the best person to sell that product,” said Liu. “Don’t rely on your recruiting process to be able to save the company. If you are running out of cash, you need to be on the phone every single hour of the day trying to drive revenues.”
Higgins said he wants the CEOs of his portfolio companies on the road selling, something that he also takes on as a board member. His goal: Help move clients from a pipeline to a purchase order.
“That’s where it counts,” Higgins said.
The remarks by Liu and Higgins came after a discussion about what angel investors are telling portfolio companies about surviving tough times — an especially timely topic given recent predictions of a cooling venture capital and angel investment market.
Sarah Imbach, an angel investor who previously held executive positions at 23andMe and LinkedIn, offered similar feedback.
“If it doesn’t actually impact revenue, then you shouldn’t be spending any energy or time on it,” said Imbach. She added that startups need to staff accordingly with that in mind given the current climate.
“If you do have to cut, don’t get rid of your best sales person because they are the most expensive,” said Imbach, adding that first-time entrepreneurs who have not weathered a downturn need coaching on this topic.
Angel investor Dan Rosen said he anticipates more “private-to-private” transactions in which heavily-funded startups get purchased by other venture-backed companies.
“Even though the price we get may make us want to hold our nose when we sign the docs, I have been willing to sign those docs because I’d rather have a smaller percentage of a really well-funded, well-managed startup someplace else that bought our guys, then one that is going to go under in another six months,” said Rosen.
Meanwhile, Liu said he’s telling portfolio companies to have a “plan B” in case the capital markets tighten.
“One of the easiest things to forget as an entrepreneur is that cash is the killer of all startups,” said Liu. “The writing is on the wall, and so we are telling companies to make those cuts now.”
At the end of the day, he said, startups need to make sure they have enough cash in the bank to “stay alive.” And, if they make it through a downturn, they will be even better positioned to pick up market share from competitors who might not survive.
Some of the lessons shared by today’s panelists were similar to those offered last month at GeekWire Startup Day, in which four angel investors offered tips for surviving tough times.