How to Survive - and Thrive
It's not the apocalypse but it is time for savvy, strong leadership at young tech companies. Here are ten tools for a recession survival kit.
By Bryan Stolle, Mohr Davidow Ventures
Dec. 10, 2008
This period in history is unique indeed. Books will be written. Meanwhile this is no time to curl up in the fetal position.
Yes, the environment for young companies is problematic at best. Business is slowing. Visibility into 2009 - much less 2010 - is uncertain. Capital markets are all but closed to many. But history shows that some of the strongest and most valuable companies emerged from tough economic times. Today's sobering headlines are sending a clear message: executives must plan accordingly.
Sledgehammer sans the Velvet
Despite a year-long economic decline and a global financial meltdown, a PowerPoint deck in October about the economy and the capital markets caused a buzz in Silicon Valley. In a widely distributed presentation Sequoia Capital warned its portfolio companies to get ready for some really bad times - worse than any seen before. "End of days" kind of stuff.
Sequoia and others with similar missives were trying to do what any good board member would ask his or her company to do: soberly assess the challenging business environment, plan an appropriate course of action, and execute. Some saw the guidance to spend every dollar as if it were their last as the ultimate challenge, others saw it as a "kick in the pants". Still others felt the warnings were a bit melodramatic.
At Mohr Davidow Ventures, for most of our companies, the severe downturn has had limited impact on revenues (so far), and it remains difficult to assess what the full impact will be. In market downturns, sometimes demand isn't altogether negatively impacted for startups (law of small numbers) - and in some cases, demand can even grow.
What we've been telling our CEOs is rather than hunker down, it's time to step up. Very often, VC-backed companies are run by young and/or first-time CEOs. We have found that they're up for the challenge and will lead their companies with a success plan that includes spending wisely, creating differentiation from competitors, and preparing for the recovery to come. Like all of us, they are learning again the importance of being extremely mindful of budgets. They are also facing the new leadership decisions and challenges around staffing and customer management.
Surviving For Success (Without New Capital)
Where the recession really hurts, especially in the early stages, is on the capital side. Many investors have completely pulled back from the marketplace. The remainder are spending considerably more time on due diligence and have significantly raised the bar on any investments they are considering. At MDV, we are certainly still open for business and making new investments, but we are also spending more time supporting our existing entrepreneurs.
The reality for early-stage, venture-backed startups is that one round of funding is rarely enough. It typically takes several rounds of capital investment to bring a company to its full potential.
As liquidity virtually stopped in late summer (and remains extremely tight today) many companies were left in a stressful capital situation. Even the most "worthy" ventures do not know when - or if - they will get their next round of financing, and under what terms.
For the large majority of companies who are struggling to raised capital now, the trick is surviving until the opportunity to raise capital returns - AND having an attractive company when it does. That will take time since economic recoveries don't happen overnight.
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Yes, the environment for young companies is problematic at best. Business is slowing. Visibility into 2009 - much less 2010 - is uncertain. Capital markets are all but closed to many. But history shows that some of the strongest and most valuable companies emerged from tough economic times. Today's sobering headlines are sending a clear message: executives must plan accordingly.
Sledgehammer sans the Velvet
Despite a year-long economic decline and a global financial meltdown, a PowerPoint deck in October about the economy and the capital markets caused a buzz in Silicon Valley. In a widely distributed presentation Sequoia Capital warned its portfolio companies to get ready for some really bad times - worse than any seen before. "End of days" kind of stuff.
Sequoia and others with similar missives were trying to do what any good board member would ask his or her company to do: soberly assess the challenging business environment, plan an appropriate course of action, and execute. Some saw the guidance to spend every dollar as if it were their last as the ultimate challenge, others saw it as a "kick in the pants". Still others felt the warnings were a bit melodramatic.
At Mohr Davidow Ventures, for most of our companies, the severe downturn has had limited impact on revenues (so far), and it remains difficult to assess what the full impact will be. In market downturns, sometimes demand isn't altogether negatively impacted for startups (law of small numbers) - and in some cases, demand can even grow.
What we've been telling our CEOs is rather than hunker down, it's time to step up. Very often, VC-backed companies are run by young and/or first-time CEOs. We have found that they're up for the challenge and will lead their companies with a success plan that includes spending wisely, creating differentiation from competitors, and preparing for the recovery to come. Like all of us, they are learning again the importance of being extremely mindful of budgets. They are also facing the new leadership decisions and challenges around staffing and customer management.
Surviving For Success (Without New Capital)
Where the recession really hurts, especially in the early stages, is on the capital side. Many investors have completely pulled back from the marketplace. The remainder are spending considerably more time on due diligence and have significantly raised the bar on any investments they are considering. At MDV, we are certainly still open for business and making new investments, but we are also spending more time supporting our existing entrepreneurs.
The reality for early-stage, venture-backed startups is that one round of funding is rarely enough. It typically takes several rounds of capital investment to bring a company to its full potential.
As liquidity virtually stopped in late summer (and remains extremely tight today) many companies were left in a stressful capital situation. Even the most "worthy" ventures do not know when - or if - they will get their next round of financing, and under what terms.
For the large majority of companies who are struggling to raised capital now, the trick is surviving until the opportunity to raise capital returns - AND having an attractive company when it does. That will take time since economic recoveries don't happen overnight.
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