The party is over: Practical startup advice for surviving an austere 2013

By Philip Beauregard , written on January 1, 2013

From The News Desk

Fiscal cliffs. Series A crunches. Down-rounds and startup deaths. This is starting to sound more like Halloween than New Year, a zombie or ghoul around every corner, waiting with an ax to take to your company’s jugular. Unfortunately this isn’t make believe. It’s yet another "new normal" in an ever-changing startup environment. It’s not new, however. It’s a remake of an old movie – same script, different director and cast.

I won’t go all Sequoia “doom presentation” on you, but I will tell you that I’ve been thinking about shoring up our defenses in case of an economic downturn. I’d rather be prepared for the worst then assume the best.

Spend money on headcount

You should pay premiums for the best employees but hire only when you hit certain milestones and it makes total sense for your business. Only you know when that is, but a decent baseline rule is don’t hire until your arm is falling off. What I mean by that is hire only when it’s unbelievably painful not to fill that role.

Don’t spend money on anything besides headcount when you have less than 30 employees.

People build businesses and products. T-shirts do not.

Lay off the valuation gas.

Sure high valuations are great if you’ve earned them. Be realistic about the state of your business, where it can go, and how to get there. Recently some companies faced the gallows because they raised money at a premium, then hit hard times. Acquirers won’t pay a price that satisfies investors, and investors won’t invest in an up-round. Early, cornerstone employees face massive dilution and leave. Company slowly dies. Tragic.

Raise less money.

Raise only what you need to hit your next valuation milestone, your next inflection. Usually 18-24 months of burn is standard at the A round and beyond, 12-18 at the seed stage. This isn’t a contest. News headlines are fun, but they don’t build businesses. Talk to your advisors, mentors and investors and groupthink your way to a realistic plan of attack. You’re all in it together. Be transparent and follow through on your promises.

Concentrate on traction. Concentrate on proof.

Pretty simple, but the hardest thing to do. Doesn’t necessarily mean go out and “buy revenue,” or amass users. It just means prove that you can build a profitable company and that you have the basic roadmap to get there. Investors understand that you are still figuring it out. Figure it out with them. Put thought into how you can build more, sell at a higher price, and acquire users/customers at a lower cost.

Whoever your customers are, listen to them.

This should probably be number one. Call it customer development, call it field R&D, whatever. Just make the phone calls. Schedule rigorous product management/development protocols and have weekly meetings with customers. They are your life blood. They want to be heard. Listen to them. It will help you build a business more than anything else.

Build processes into your business.

No more shooting from the hip. Your team is growing. Or not. You are adding customers. Or not. In either case you should focus on repeatability. In sales, implementations, downloads, engineering projects, deliverables, whathaveyou. Everything need become repeatable. Like clockwork. Then it becomes scalable. Then we all know what happens right? Right. To the moon.

Survive and prosper.

Every day is a day where you can get better, faster, and more battle-tested. You are laying the foundation of a massive skyscraper. What you do now will dictate whether it stands tall or tumbles. Be methodical but be relentless and resolute. Be agile and persevere. But most importantly realize that those cornerstones, that foundation of yours best be made of Rearden Steel and reinforced concrete. Lest it all fall down.

Nothing I’m saying here is new. That’s the point. Good entrepreneurs win in any environment: fiscal cliffs, crunches, massive deleveragings, zombie apocalypses. I imagine Andrew Carnegie and John Rockefeller once felt the way you do today.

They made it. Will you?