I had done this post six months back with some experiences from the bust, and a promise to come back with more if things worsened. That the financial world is in turmoil is old news now. Recapping some lessons for startups from a crunch:
- Cash is king – raise money if you can; don’t vacillate on valuations. The first impact of the overall liquidity crisis on Indian venture capital market is beginning to show up – some funds have decided to go slow or not invest in near term. It will get worse before it gets better. Nice explanatory post here.
- Cash is king – make the money you have go extra mile. Trust me – your company has flab – cut it out. Cut costs with a zero base analysis – there’s more than you think. Watch your receivables hard.
- Get your blinkers – focus on your existing lines of business, focus on customers. Postpone the more uncertain and long term investments if required. Think about how this downturn affects your customers and your partners – how does it affect you?
- Keep your team together – share and celebrate successes, be transparent about challenges. Invest in your best people.
Its again one of those times in which some great companies will be built. Make sure yours is one of them!
PS: Canaan continues to be excited about opportunities in the Indian venture space, and continues to invest.
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Raghu – totally agree. Some businesses take an aggressive approach during a downturn because they can afford to (or make a “bet the company” move, such as what indiabulls did in the last downturn, and came out very strong). Thats partly the reason I tend not to prescribe uniform silver bullets. But sure, if you cant survive, talking about a long term plan is meaningless.
@ Alok : “not sure applying the style suited to a bust in a boom situation is a good thing”… I totally agree with this. Infact (due to capital constraints) it was frustrating for us not being able to scale up real fast and grab market share in boom time an year back… and by force we had to operate in a bust-time fashion.
Regarding “long term vs short term”, if the very survival is not an issue, then I think its a matter of strategy whether you choose to ‘meet quarterly targets’ by making temporary changes in your value prop or business model; or choose to continue building upon your strengths to emerge stronger after bust cycle is over.
Established businesses can opt for either of the 2 options. However for a startup, making even temporary changes would mean loosing your very identity forever and destabilizing the business plan (its especially bad if you have already got market validation and your plan is seeming like working). Therefore i guess early stage startups should continue focusing on their ‘primary’ objectives (its a better word that ‘longterm’ or ‘short term’ :)), IF.. as i said the very survival isn’t an issue.
Alok, I would be eager to have your comments on this…
@ Ajitesh : you are right, short vs long-term focus depends on product & target market.. i heard that there was a chocolate brand launched in Europe somewhere called “Credit Crunch”… bad example but smart anyways 🙂
Raghu, nice to read your views. I believe, the recession time is the best judge of various aspects of startups. Short-term or long-term focus might, in fact, vary with the product and the target market one is dealing with. cheers!
Raghu – I was waiting for this to come up 🙂 There are some relatively sound principles of managing a business, which survive across cycles. However, often different conditions warrant different operating styles, and I am not sure applying the style suited to a bust in a boom situation is a good thing.
On your specific list, you said “focus on long term” – not sure in this environment – focus on short term is more likely the mantra. Once you have secured the short term, start looking at long term.
Again, being revenue oriented rather than marketshare oriented, and being capital efficient are goals that are always relevant. The tradeoffs change. These are dependent on market conditions (see crossing the chasm for flips that might be required between being customer oriented or not over different stages of adoption). These also become far more important in a capital constrained environment. In a capital-abundant environment, when we get there, it will be worth rethinking these tradeoffs. Great read here – as it says “Sure we all want profits asap. But in the real world there are decisions and trade-offs.”
Keep smiling 🙂