10 Tips for StartUps to Survive the “Recession”

“Don’t Panic!” These are two words (made popular by Douglas Adams in The  Hitchhiker’s Guide to the Galaxy) that every day become more appropriate and valid. Credit has dried up as has funding by Venture Capitalists, Angel Funders and the like. If you are a bootstrapped company, a startup or a company in “stealth mode,” right now you might be wishing that you had taken a more stable job at a large corporation (hopefully not in the Financial sector) or that you had planned better for another bubble to burst. Well fear not…there is always a way to survive, through careful planning and management.

I would like to offer the following “Guide” of my own to those small companies or startups that are struggling now, on the verge of closing shop or just ready to give up. First, let me restate Adams’ words: “Don’t Panic!” There are methods to keep your company and vision moving forward, maybe in a different direction or perhaps a bit more slowly.

Here are a few things that you may want to consider as you re-architect your survival strategy:

1. Start Now – don’t take a “wait and see” attitude. If you have a great idea, keep moving forward, but DO start your cash conservation immediately. The mere fact that you are searching for information and reading this post is a great sign that you are being active!
2. Outsource – sure, doing things in-house can save you some cash, but only part of the time. Truly evaluate what makes sense (cents) in your day-to-day operations. If it takes your developer a week to do something and an outside “specialist” a day or two, evaluate the costs of both actions. If you aren’t paying your employees and they are doing work in their free time, try to factor in the time-to-market of that approach. While you may save money in up-front costs, you may lose it in terms of beating your competitors to market. Here are a couple factors within “outsourcing” to consider:
   • Human Capital – frequently small boutiques who are experts in a particular field can do things faster and better than you can in-house. They, too, might be effected by the economic downturn and may be willing to cut some of their costs just to have your business.
   • Operations – this can be both on the technical or just the basic company operations side. If you are providing healthcare benefits, see if you can change your plans or even ask your employees if they have other means to get healthcare (e.g., through a spouse).
3. Avoid Capital Expenditures (CapEx) – hardware costs money, lots of it. Of course this all depends on what stage your company is at. If you are just starting, you may be able to get away with repurposing old computers and sharing bandwidth, but as you grow and get closer to having to “prove your value proposition” to investors or even end-users, you do need some sort of infrastructure. Consider using Cloud Computing (e.g., GoGrid) to host your infrastructure, whether it be a development environment or eventually your production infrastructure. By using “the Cloud” you have zero CapEx, no monthly/yearly contracts and are billed by your usage. This is a great way to control your costs and scale only on-demand. You can easily control your capacity, and avoid having your infrastructure sitting around unused or idle.
4. Simplify/Set Realistic Goals – The more complex you make things, the harder they are to undo. Figure out what you really want to do with your business. Is it a hobby or your life work? Do you want to be the next Google? If so, you probably want to rethink that. While it is good to have lofty goals, keep them closer to earth. Did you hire someone who sold you on reaching something unattainable? You may want to reconsider that, hard as it may be, and let those people go. Re-architect your strategies. Clearly identify the most fundamental and basic goals you want to achieve. Sometimes through simplification, you can find a niche that others haven’t. That makes you more viable and attractive. If you are doing something that everyone else is gunning for, and you are struggling, it probably isn’t worth it. You don’t need to throw it all away, but you might want to evaluate what you want to do and choose 1-2 things that are (somewhat) unique. Remember K.I.S.S (Keep It Simple, Stupid).
5. Remain Flexible – the worst thing that you can do in these trying times is not move or be rigid. Being a startup or small company has definite advantages. You have the ability to move much more quickly than larger companies. Look to be flexibility in many areas: strategic direction, product or service feature set, tools and infrastructures and even work ethic. Keep your employees happy by finding out what works best for them. I’m reminded of a story I heard about a hair dresser who was looking for a change. After some soul searching and help from some personality profiles, they became a landscape architect: similar ideas of grooming but in a completely different field (literally). So stay flexible in your own thinking as well.
6. Network & Socialize – as you start to panic, the worst thing you can do is do it alone. Trust me, there are many people and business who are sharing your same concerns. Some may be further down the process of recovery or re-architecting and may be willing to share with you their experiences and what to or not to do. There are so many ways to connect with people nowadays. There is the obvious Social Media (e.g., Twitter, Facebook, FriendFeed, etc.) and I’m a big proponent of these methods. However, in this case, you may really need to just “get out” and talk to people face-to-face. If you live near a big metropolitan area, there is most likely some sort of meetup (check MeetUp.com for example – their video really is great!) or event that meets your needs. Go to them. Start talking to people. (If you are in San Francisco, check out an event I host called StartUpSF.) You may be surprised as to how many great ideas you may get and even how many people really want to help. New strategic partnerships are frequently started at events like this. It’s important to listen to new ideas and see how they apply to your own. Some of the things you hear may influence how you attack other points on this list. Remember too that you can socialize your Public Relations very easily now. Read some experts’ tips and you may save costs and time there too.
7. Conserve Expenses – this is obvious enough. Watch your energy expenditure especially. I mentioned the Cloud before; by outsourcing your IT infrastructure, you can save tremendous costs, especially if you are doing it yourself through your own server rack in your closet. Don’t travel if you don’t need to. With large bandwidth pipes, it’s easy to have video conferencing with almost the same result as a face-to-face. Save the face-to-face for closing the deal. Oh, and pack your own lunch.
8. Don’t Ignore the Rest of the World – the US economy may be seeing some hard times, but there are other markets out there that may want to spend their money with you. Invest some time in reviewing these other markets. Their currency may be a lot stronger than the US dollar, so they may be more willing to pay for your product or service, or even invest in your business. Don’t ignore the fact that with advances in technologies, the world is a much smaller place than we actually realize.
9. Cash Flow Management – this is true on both billables and receivables. If you have existing vendor contracts and they are part of your lifeblood, see if you can renegotiate them. As I mentioned before, you are not alone in this economic crunch and many vendors (and even lenders) would rather renegotiate than lose your business. If your own business model is not getting the traction that you desired, you might want to try to tweak it a bit. Consider offering pre-payment discounts (e.g., have people commit for a longer amount of time but discount it against a monthly or smaller cycle rate). ServePath does this type of thing with managed hosting, by offering “server specials” at a lower cost. Old inventory may be sitting around so leverage it through discounts as well.
10. Keep your Day Job – I had to end with some humor. If your startup is your life-long passion, it is your day job so take these tips to heart. If it isn’t, remember you have to pay your bills somehow.

Do you have any other ideas, tips or suggestions? If so, I would love to hear them. And remember, “Don’t Panic!”

Note: I originally wrote this for my work blog(s) but I believe that it is a timely post that can help many different audiences. Hope you enjoy it and it is helpful!