Nivi · October 14th, 2008
“Spend every dollar as if it were your last.”
“A business plan that doesn’t require a wonderful economic environment in order to succeed… is a good idea all the time.”
Summary: In good times and bad, startups should be asking themselves the same questions: (1) What’s our runway? (2) What experiments are we running to extend our runway? (3) How long will we try the experiments before we switch to plan B? and (4) What’s plan B? Startups that survived the last downturn didn’t take life-threatening risks with their runway—survival mattered more than market domination.
If you haven’t seen Sequoia’s presentation on the downturn, R.I.P. Good Times, watch it now and read the meeting notes from GigaOM and Silicon Alley Insider.
(If you don’t see the presentation embedded above, watch it on SlideShare: R.I.P. Good Times)
Sequoia’s presentation offers a lot of good advice with typical insight, simplicity, and clarity. Here are a couple thoughts on their presentation.
1. The future ain’t what it used to be.
Don’t take Sequoia’s (or anyone’s) predictions about the future too seriously. If they’re smart enough to predict the future, they should have done it before the downturn.
2. Sequoia’s advice is good advice anytime.
In good times and bad, startups should be asking themselves the same questions:
- What’s our runway?
- What experiments are we running to extend our runway? (e.g. chasing revenue, raising capital, taking debt, writing grant proposals, cutting burn, grabbing market share in the hopes that it will help us raise capital later, et cetera)
- How long will we try the experiments before we switch to plan B?
- What’s plan B?
Good times
When it seems easy to extend your runway (good times), companies operate with shorter runways, they run experiments that are less likely to work, that have higher value outcomes when they do work, and they run them longer:
Let’s chase market share until we have 3 months of cash left so we can raise money at a high valuation and let’s hope capital will be available then.
Bad times
When it seems hard to extend your runway (bad times), companies operate with longer runways, they run experiments that are more likely to work, that have lower value outcomes when they do work, and they run them for shorter periods of time:
Let’s raise money right now even though our valuation won’t be optimal, and if that doesn’t close in 2 months, let’s cut our burn and chase customers.
Good times, Bad times
Here’s a table that summarizes the difference between good times and bad times:
Good Times | Bad Times |
Seems easy to extend runway | Seems hard to extend runway |
Short runways | Long runways |
Long experiments | Short experiments |
Low-probability experiments | High-probability experiments |
High-value experiments | Low-value experiments |
What’s your runway plan?
For some, Sequoia’s advice is good advice anytime. These people like to run their business as if it’s always hard to extend their runway.
Others (contrarians) will ignore Sequoia’s advice. They will take big risks and run their business as if it’s easy to extend their runway.
There’s nothing inherently right or wrong with either approach. Choosing a runway strategy is part of the CEO’s job description.
But our observations match Sequoia’s advice: startups that survived the last downturn ended up doing OK. They didn’t take life-threatening risks with their runway—survival mattered more than market domination.
Well said.
Regardless of the economy, if a business is doing its job right (innovators’ dilemma notwithstanding) it should be ready for down times. Even startups. That includes removing inefficiencies and being diligent about keeping costs down.
But I’m preaching to choir, aren’t I?
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[…] Generally, I’ve noticed savvy entrepreneurs and smart financial folks are staying positive. Last week, I was in Silicon Valley (northern CA) and I saw something that really ticked me off. One of the most respected VC firms met with their entire portfolio CEOs and gave them a stern lecture about sound financial management. The advice was good (for good times or bad), but the tone amounted to a scare tactic that injected fear into all of Silicon Valley. Read more about what I mean, on Venture Hacks. […]
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[…] secret Sequoia Capital meeting, which has been written about extensively over the past week (see venturehacks and Silicon Alley Insider for example). In summary, the renowned VC firm convened all their CEOs to […]
These bad times are also good times for companys that can scoop up those smaller sites and assimalate them. All those laid off will find work, there is a still a strong demand for talent and I still see lots of high paying jobs posted on popular employment sites:
http://www.linkedin.com (networking)
http://www.indeed.com (aggregated listings)
http://www.realmatch.com (matches you to jobs)
I see six figure jobs all over the place.
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