The economic headwinds are getting stonger

I was waiting for this day to happen.  Each day I go online and also glance at the newspaper, and there is nothing but bad news.  And yes, it is true that some of the best technology companies were built when the economy was at its worst.  And I always like to think that it takes a little longer for some of these negative effects to trickle down to smaller companies and startups.  Just the other day, I got the call from one of my portfolio companies which had won a huge deal last month.  We were waiting for the purchase order and the dreaded call came: "You still have the deal but our CFO needs us to cost justify every dollar we spend on IT – the deal will have to wait until next quarter."  That definitely put a kink in our plans and also caused us to adjust our Q1 forecast.  Fortunately, many of us had been through this before and management had prepared alternative plans based on various growth rates at our last board meeting.  We had a base case model which we were running our expenses on, an upside model which we had hoped we would achieve, and a lower growth scenario which we would have to implement if bookings did not materialize.  I know that this is one data point but all I can say is that if you have not done so already, prepare a few different models to make sure you can make appropriate changes to your business to conserve cash.  I won’t say that we are in a recession but if we get more data points on spending freezes, layoffs, and the like, it is only prudent to be prepared.  And yes, as I stated above, while some of the best technology companies were built when the economy was at its worst, they would not be here today if they weren’t standing when the markets rebounded.  That means that you have to rationalize your business and put more resources behind what is working and not spread yourself too thin.  That means if you are raising another round of funding try to raise more capital rather than less – focus on having about 18 months of fresh dollars to see through the other side.  Finally, stay strong and keep your head up because if you follow the above advice you will have a much stronger business when the markets rebound.

Published by Ed Sim

founder boldstart ventures, over 20 years experience seeding and leading first rounds in enterprise startups, @boldstartvc, googlization of IT, SaaS 3.0, security, smart data; cherish family time + enjoy lacrosse + hockey