One of today’s spreading stories is sending out mixed messages. VentureBeat reports on Sequoia Capital, whose leaked presentation carries the starkly grim message “R.I.P. Good Times”. The message to startups is simple, but reflects some of the desperation various companies must be feeling by now: “Get Real or Go Home”. However, there’s some more concrete advice in the presentation.
Instead of reaching out and throwing money at a market share, preserving capital is the way to go; streamline operations and stay cash-flow positive, ensuring your product is a must-have, the revenue model is sound, your customers can pay and you know your place amongst your competitors. There will be fewer acquisitions, prices will go down, so don’t bank on being bought out by a big guy as your only viable exit strategy. Spend every dollar as if it were your last.
On the other hand, BusinessWeek’s TechBeat is resoundingly chirpy over the fate of early-stage startups. Early stages aren’t worrying about revenue and being cashflow positive, though those with grand designs of $10m first-round funding and being bought out within a year will probably have to rethink their plans. Investment will be hard to come by for the near future, but that affects early stages less than those already grimacing at their bottom line. No, seed-stage businesses are in a great place now, as they can adapt far more readily to the changes in the market than an entrenched company.
TechCrunch nails it: “So what exactly just ended? Easy capital to start.” If your prospects are solid, there’s still going to be money out there. But if you’re flying high on an idea that won’t ever recoup the sort of revenue you need, the reality checks of the current economy will bring you down to earth before money gets wasted. It’s all too reminiscent of a few years ago, but many businesses survived that intact and even stronger than before. Consumers and businesses are tightening their belts, but there’s still basic demand for a lot of things.
Plus, there’s always an opportunity in the darkest of times; how many businesses will spring up offering financial advice, discount products, coupon roundups or any of a hundred-and-one ways humans profit from others’ panic and loss? Far too many.
[Update: Great post on the downturn and startups by 500 Hats, via Tim O'Reilly.]