Doom and gloom prevails in the media - corporate bailouts, bankruptcies, foreclosures, credit squeezes and rising unemployment dominate the headlines. So what is the prudent start-up CEO to do - stick to the plan you developed last year, raise more cash before the situation worsens, plan to reduce the burn rate and conserve cash, refocus your energies on revenue whilst cutting costs…well, all of the above is probably the best answer, but here’s ten ‘top tips’ for turning the downturn to your advantage.
Cash is king - take a look at every single outgoing…salaries, benefits, office space, capital equipment purchases, etc. etc. and identify any you can cut or reduce. Extra office space? - sublease it or find another start-up willing to share with you. Indulgent benefits? - gym membership is nice but do folks really use it? Need to buy new office equipment, servers, monitors, etc? - look at buying used equipment or ‘no name’ brands. Hiring? - Revealuate the salalries you have budgetd for new hires as the market is less competitive so you may be able to pay less. Travel? - look at whether you really need to make that cross country trip now instead of postponing it until you have lots of meetings you can roll into one trip, or even better, do more pre-qualification via phone before you jump on a plane (and when you get there stay at the Holiday Inn instead of the Four Seasons)!
Plan and model your cash flow - make a detailed cash flow model so you can test various scenarios, plan cash conservation strategies and model decisions. If you dont knwo how to do this, hire a consultant to help you (or call me!) - a few $ spent now will save you a ton later.
Renegotiate contract terms and push out Accts Payable - take a hard look at all your outstanding contract obligations and identify those that may bear some renegotiation. You may be able to reduce your rent obligations, change payment terms for licensed software, etc. Additionally, start stretching out accounts payable on utilties, insurance, etc. Almost all your accounts have long grace periods - use them!
Examine your deal structure and strive for upfront payments - SaaS companies especially can look to offer large discounts on upfront vs. monthly payment terms. Move more of the revenue of a deal into the NRE and away from recurring payments.
Get aggressive in securing deals - now is a great time to actually ramp up your sales activity by securing some aggressive deals that will keep your top line and market share growing. Slowing down is exactly what you will feel like you should do (any many of your competitors will be doing) - do the opposite and seize the day!
Become a guerilla marketeer - your instinct will be to slash the marketing budget, but first look at how you will market your product on a lower budget - look at using social networks, blogs, networking events, SEO and other channels to get your message out. Get everyone involved in brainstorning guerilla marketing tactics. Once you’ve done that make sure you have the right folks in marketing to implement this new approach and then cut the budget.
Critically evaluate your team - now is the time to make sure you have a the right people in the right roles. If someone isn’t performing then let them go ASAP and only replace them if you absolutely have to.
Help your employees to become better friends - don’t expand your office space or rent new space until you absolutely have to - double up in large cubes, become more ‘open plan’, utilize unused walkways - suqeeze folks in - they may even start to communicate better!
Get a line of credit or some venture debt now and draw it down before you need it - by the time you need it you won’t be able to get it, so get it while you can.
Raise venture capital well before you need it - if you’ve recently closed a round and have 9 or months runway then look at raising another round but don’t get greedy on valuation. You probably look a lot better and healthy now than you will in 3-4 months, so capitalize on it.
As a last resort, look at pay cuts - start by cutting your own pay and then cut all bonuses, get rid of consultants, and then, as a last resort, do a unilateral pay cut (issuing options if you have them as compensation). Done right and those who really ‘believe’ will stick with you (and they are the people you really want). Pay cuts are tough, so make sure you have tried everything else first.
Every successful entrepreneur has had to wwether tough times and with prudent planning you can too - good luck!