Beware Entrepreneurs and Startup CEOs – Prepare Now – Read This Post October 10, 2008Posted by John in Technology.
I have to repost this comment on my New Silicon Valley Movie post. It’s Denny Miu a seasoned entrepreneur who has been making moves in Silicon Valley for years. If you’re in business as a startup or VC backed startup here is some ‘must read” advice. Sometimes the most simple advice is worth hearing.
Denny Miu says to fellow entrepreneurs and CEOs — (Please learn from guys like us and listen to this advice).
I know how important it is to stay optimistic and as entrepreneurs, we are by natural an optimist. But having survived the last downturn and seeing what I am seeing now which clearly indicates that this downturn is much worse, much boarder and much more sustaining, my advise to fellow entrepreneurs (especially those who are CEO’s) is that “don’t be an optimist”.
This is the beginning of the beginning. It will get a lot worse for a lot longer. My experience is that is that “just because you are convinced that it won’t be get any worse doesn’t mean that it will get better”. If you are a CEO running a startup with fixed cost, whether your company is profitable or not, now is time to cut at least one-third of your workforce and make sure you have enough cash in your bank to sustain two to three years of burnrate.
If your company is not yet profitable, then burnrate is obviously equal to fixed cost. If your company is profitable, think about what happens if your revenue goes down to zero. Keep in mind that just because you sell $1M this month doesn’t mean that you get a $1M worth of incoming cash. What if your customer doesn’t pay, or if they decide to pay in 60 days.
And with resellers, the problem gets worse. They have no line of credit. They can only pay you when they get paid. Keep in mind that chances are that your suppliers will start to demand cash upfront. So you will get hit on both ends. Things get bad really fast and now is the time to make drastic cut.
Unfortunately cutting fixed cost means cutting headcount. In other words, now is time to lay people off. It is a very tough thing to do, especially for entrepreneurs. In summary, what I have learned is that “your most valuable asset is your money, not your people”. I have learned this the hard way. It is the best advise that I ignored. Let it not be yours.
I will add again – sales and revenue. Simplicity wins – time to run the business on the back of the napkin – black line (revenue) and red line (expenses) … make sure the black line stays on top of the red line. Have a plan and listen to Denny’s advise (everyone who’s been there and done it agrees).