Startups are my passion. I spend a lot of time around them, watching them, interacting and working with entrepreneurs, and seeing how they cope with this recession. In this spirit, here are my top 5 tips for startups on surviving the recession.
- Remember that the Recession is an Opportunity. All changes in the business environment are an opportunity to do arbitrage on those changes. If you did enterprise software or services before the recession, you had a big barrier to entry in the form of the corporate relationships and huge sales forces that companies like Microsoft and Oracle have. But if your service is cheaper than your competitors, in this environment, chances are big corporate buyers will overlook the fact that you’re five guys in t-shirts and flip-flops. If you’re a creative content company, remember that movies are a counter-cyclical industry: in a recession, people want more entertainment to change their minds. This is an opportunity for you. More broadly, recessions are the best times to overtake competitors. Remember that the recession will affect your competitors too. They’re likely to advertise much less, so right now might actually be the best time to splash on a huge ad buy (this also means ads are cheaper). Or maybe they’ll be in more trouble than you so you can buy them, or just watch them flail around and crash.
- Adopt the New Owner Mentality. As entrepreneurs, we are in love with our businesses. We pour ourselves into them day in and day out, and we think about them 24/7. This is a strength: you can’t win as an entrepreneur if you’re not passionate and committed 200%. But when the macro environment changes, it can be a weakness, because we’re too close to take the broader view. So do this thought exercise: imagine that you, the founder, have been fired, and you’ve just been brought in as CEO. What are some of the blunders the previous guy did? What needs to be changed? What priorities need to be shifted? What did the previous guy miss? Your VP Sales may be a great friend of the previous CEO, but has he really been productive? Of course, the answers to these questions will be things you already know, but in the back of your head, without fully realising them. Detaching yourself emotionally from your past decisions should make those choices more obvious, and easier. It sounds silly, but try it on for size.
- Take the Long Term View. Now that you’ve looked at how the recession can be an opportunity and not just an anvil around your neck, and you’ve taken a cold, hard “new owner” look at your business, it’s time to make some goals. Here’s a great tip: “when u close your 1st round, immediately create the ideal slidedeck for raising your 2nd. these are your new company goals.” This matters even if you haven’t raised or won’t raise VC. Think about the kind of presentation you’d like to make to potential investors or customers (or Startup 2009) about your business a year or two from now. These are your new goals. Surviving the recession will be a byproduct of that, not one specific goal. If you’re an investor-funded business or otherwise not yet profitable, do about twelve different Excel projections on how, and under what assumptions, your runway will take you there.
- Make Changes Fast, and Open. Nothing is worse than death by a thousand paper cuts. If you decide that the recession doesn’t change your overall strategy and/or business model, you just need to cut some costs and ride it out, that’s fine. If you decide that you need to completely change your strategy and business model to face the recession, that’s also fine. But either way, you need to reach that decision quickly and, most importantly, implement the changes quickly, and get back to actually running your business. This is especially true with layoffs. Laying people off is horrible. But it’s even more horrible to leave people in the dark, not knowing whether they’re going to be laid off or not, agonizing and polishing off their LinkedIn profiles instead of working. So do it quickly, as humanely as possible, and then move on. Prefer cutting too close to the bone rather than too far. If you’re going to renegotiate your office lease or fire your PR firm or what have you, do it now. Just as importantly, you have to be as open as you are fast about those changes, to your employees and your investors. Explain to them why the layoffs are necessary, other than saying it’s “the economy.” If they’re going to have to move out of their Broadway offices into cubicles in a renovated strip mall in New Jersey because the new lease will buy you a few months of runway, say that. Show them your P&L and your Excel projections. They might be grateful for that openness, and if not at least you’ll have done all you could.
- Be Awesome. Last and most important. In a bear market and in a bull market, the single best predictor of success is simply being extremely good at what you do. The reason you need to take the long term view and make changes fast is so, once you’ve done that, you can go back to doing what it is you launched that startup for in the first place. The recession is not going to kill most companies that have a killer product or service. But if you have a killer product or service, worrying to much about the recession instead of constantly refining and promoting it, that might kill you. So when in doubt, be awesome. It’s no guarantee, but it’s your best bet.