OK, hands up, who's truly surprised by the drop in the stock markets or the postponed tech IPO's or even the upcoming slowdown in venture financing? No really, who is surprised? If you said yes, stick your head back in the sand. It's all warm and cuddly there and if that's your thing, enjoy.
For the rest of you, let's get back to business. What is the reality now? Well, as many have written, if you are out fund-raising, I sure hope you're close to closing your round. It's about to get rough out there and I am not even alluding to valuations. You will be lucky to close your round. If you are thinking of jumping ship from one start-up to another, do your homework about how much cash they have in the bank. No matter how hot, you could quickly be staring at a pink slip when the money runs out and hype no longer sustains the easy money. If you're a VC and are out fund-raising, good f%&§ing luck. It's been hard to close those funds. It's going to get even harder. If you're a private investor in stocks, you better get ready for a financial beating unless you sold everything a couple weeks ago.
Nevertheless, I will stop right there. This is nothing new. I am seriously babbling like everyone else did in 2001, 2008 and now again in 2011. The world moves in cycles and we're again at an inflection point where things get worse before they get better. But better they will be!
My simple tips to start-ups in the current situation:
- Talk to your VC's! Discuss costs and your run-rate and set clear time-lines for what you want to accomplish in the next 6 months, 12 months and 18 months. Further, figure out if your VC will have funds to do internal rounds if necessary.
- Make your customers happy, especially the ones generating the majority of your revenues. No matter what, stay focused on generating revenues.
- Keep your employees happy. People are nervous right now and it may get worse. Allow your team to work without worrying non-stop about whether they'll have a job in 6 months. Otherwise they'll be distracted preparing Plan B in case it's necessary.
- Start talking to those candidates you wanted but weren't able to get. As mentioned already, people will be nervous and if they see that their company is on shaky grounds, they may now be willing to jump over to your ship.
- Likewise, start cutting dead-weight. If people aren't earning their keep, it's time to let them go or replace them.
- Continue innovating! Nothing insures you against downturns better than amazing products. Stop just copying what your competitors are doing. Figure out something new and ship it!
- Worry but don't become paralyzed by market developments. This has happened before and will happen again. No one knows exactly how long it will last. Maybe it's just a temporary blip. Maybe not! This is where leadership truly comes into play and you as management have to keep your game-face on.
- Renegotiate contracts where possible. If you can cut costs by renegotiating rents, service provider fees and whatnot, take advantage. You may have leverage now where you did not six months ago.
- Think about the pricing of your product. Just as you may be out renegotiating things, your customers and partners are thinking similarly. Be prepared to have these discussions and know where you can give in and where you cannot.
- Continue building relationships with Tier 1 VC's. You may not need them now but if you do down the road, make sure they know who you are. It's essential to stay on their radar screens and not disappear in the flood of bad news coming out from the media.
- Maintain the relationships you have with the press. They may be hungry for bad news now but good news also comes eventually and they want to be writing about it first. Make sure you are the one feeding them these positive stories.
Regardless of the markets, your best bet is to continue being awesome based on your products and not because of market hype. No one can predict anything 100%. I am somewhat more optimistic right now since VC's who do have funds still have a lot of money to invest. Even if things get worse, the situation always brings opportunities with it. I, for one, am happy to see a little wind taken out of the sails of hype. It was getting a bit ridiculous with the billion-dollar club which we saw evolve in the US. At the same time, especially in Germany, I am happy to see a bunch of really cool companies turning into international players. A younger generation of entrepreneurs have established themselves and continue to innovate. Just look at what's going on in Berlin. It's not the end of the world but the developments of the last couple of days were a slap in the face from reality.