Weathering the Storm
what founders can do in the face of economic downturn
photo credit: Sequoia Capital
The stock market can’t continue on this path fueled by interest rates that make money as close to free as you’d ever imagine in the business world. It’s great to try to call the top of the market, a sport for some and they’ll eventually be right even if it take 3, 6, 12, 24 months to get there.
What about the rest of us, those who don’t have a portfolio approach to the future because we’ve poured everything into this one thing?
We might be fools. But if we’re not here are some ideas for survival:
Make More Money
Spend Less Money
Raise More Money
That’s it. Those are your options for reducing your burn rate (or keeping it the same and increasing your runway). There are no workarounds, no “hacks” will see you through. When it comes to surviving:
- don’t sign a long-term lease — why get locked in at sky high rents while others are snapping up spaces for $2/square ft. in the next down turn. Shoot for 2 years maximum and sublease for maximum flexibility
- be picky with hiring engineers — you really should always be picky, but when people are constantly telling you “it’s a battle out there” you might feel like you need to snap up anyone in the vicinity who codes. You don’t. Engineering hires are the most expensive hires, so be thoughtful
- don’t go crazy on employee perks — free lunches don’t cost much at first, but if you’re a growing startup working long hours you’ll find that picking up the tab for lunch, dinner, drinks and snacks 5 or more days a way can really add up. Even if you’ve raised some mega round you don’t need to try to be Google and offer laundry service, Uber credits, etc. and if startup tourists leave for greener pastures? good riddance (and by the way, why not spend money on things that really matter like great healthcare?)
- don’t go crazy on travel expenses — a hotel room? You could crash on a friend’s couch and score a nearly free flight if you booked far enough ahead of time… or you know what else you could do? Don’t go. Unless you’re the keynote, that conference probably isn’t worth it.
- fuck paid customer acquisition — Learn how to sell your own shit. Stop with the Adwords “experiments”, the Facebook Ads “experiments”, the PR agency and all of that. These are things for companies who have exhausted their organic channels and have massive marketing budgets to deploy, and 99% of you aren’t them. So stop it.
- fuck paid talent acquisition — Learn how to recruit your own team and stop paying 15–30% of the first year’s salary in commission to a headhunter or equivalent.
- stop trying to sell to startups and SMBs — Let’s face is 90% of them are going to die, so unless you’re blessed to have built a massively viral consumer product and raised unspeakable amounts of VC cash you should start targeting customers who can pay you in good times or bad
- stop trying to sell other people’s shit — you are beholden to each individual product finding product/market fit, or not… and you don’t have a lot of control. Plus your margins suck. Get software margins.
- stop discounting your product — Sell at full price and find out the truth about your product/market fit. Want to really level up? Raise your price.
- be brave enough to fire people — when in doubt, I tend to keep people on the team and work to make them successful. But in true “winter conditions” for startups there is a lot of available talent, and you should be ruthless in moving on when it isn’t working out.
- ugh I hate ending on that one…
I don’t know about you, but I will ensure my company outlasts everyone if/when winter comes, and I’d love to find some fellow travelers. What have I missed?
