Lessons from the bust

I might be calling this a little early, but in times such as these, its better to be early than dead. Now that the Sensex is 30% (Nasdaq 25%) off recent peaks, and US economy heading downwards, here are some lessons from the last time we went through this:

  • Cash is king – raise money if you can; dont vacillate on valuations
  • Put your blinkers on, and build the business – avoid distractions
  • Focus on the customer – build what you can sell in near term
  • Building brands can get cheaper – but will still take cash
  • Enterprise sales (software or services)? Count on longer sales cycles
  • Beware of old receivables – a lot will evaporate

If we do get to a full bust, I will come back with some more. Remember, the great companies of today were built on surviving the last bust. Here’s your chance.

23 Responses to “Lessons from the bust”

  1. srinivas says:

    Alok ,

    Thanks for the guidelines. Do you suggest companies looking for funding for branding and business development now rework and look at acquisitions in US/Europe? I had couple of interesting M&A proposals over the last few weeks in my Inbox from few investment banks in US.

    Any tips from anyone?

  2. balu says:

    I still believe that if your story is strong and is India centric, you need not be worried too much on the downtrend. Yes, certainly their will be an impact especially in raising cash but i guess the if we survive through the tough times by bootstrapping well and identify unique models to stay afloat… then i guess you will come out a winner

  3. Old hand,
    Me too share the same view as of you in this regard. Like in the dot-com era, most of the present startups do not have products or services which solves any real problems. Many of them just got fascinated by the success of startups like say a google or a yahoo or concepts like VC, funding etc.

    Whats the point in some one trying to raise funds for a product or service which doesnt provide any value to the end user or solve any existing problem or need in the market.

    Recession or burst, companies with a long term strategy and those with products that brings value to the market / customers will survive, this is what happened during the earlier dot com burst.

    My point is that startups / companies with a cutting edge / disruptive technology or a product that solves the pain of the customer need not worry about funding / burst to an extent. All they have to do is be prepared for the worst and have a strategy to survive through the difficult periods.

  4. Old Hand says:

    The post is timely and well intended. I wanted to challenge a few points, not dispute them but widen the perspective:

    >> Cash is king – raise money if you can; dont vacillate on valuations

    What’s also important is to evaluate whether what you were building is worth it for the world in the first place. In the dot com phase, completely useless and unneeded business models were pitched to investors. To be honest to yourself, current investors, and employees, re-evaluate whether what you are doing is really worth it, solves any real problems, etc. Otherwise returning money to investors and shutting down the company, taking a break, may be a better demonstration of integrity. There were some entrepreneurs in dot com days who did this.

    >> Put your blinkers on, and build the business – avoid distractions

    Again, reevaluate if what you are doing is worth it. Spending time at home with family, pursuing your other interests, and even working for larger company, may all be better than building a business the world does not see value in. There is no point in blind faith and blind passion.

    >> Beware of old receivables – a lot will evaporate

    Find new ways to partner with your customers, tighten the relationship, find new payment models, ask for equity if they can’t pay in cash, before just giving up.

  5. vkhutal says:

    Markets look for fresh value of the product as services during recession or slow timing. The fresh values are totally driven by stock value and stock performance of the companies.

    Lets say GE giving big junk of projects to INFY, which has direct impact on INFY balance sheet then it will always monitor infy stock values and profit margins from stock exchange point of view.

    The moment GE feels its own stocks are performing below infy stocks in term of PE ratio, EPS as well as value. It can press the alarm to change the vendorer or bring the cost down to become most efficient company.

    LAWS ARE QUITE SIMPLE. It is survival of the fittest. GE will fit in new era with new cost structure to give better returns to its investors.

    Personally you would never want your vendors to be more rich and efficient then you. In case you are making losses and he is making very good performances.

    STOCK MARKET HAS ALL THE RULES OF ANIMAL KINGDOM.

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