More reasons to watch your burn

Despite these tough times, there are still some bullheaded companies who think they can grow their way out of this mess or find the right M&A partner to bail them out.  I can guarantee you that this is a recipe for disaster.  I was on the phone today with the CEO of one our portfolio companies, and we were joking that we were in unprecedented times since we have been approached by a number of bankers about buying companies that are much larger than us.  So if these bigger private companies are hawking themselves looking for a deal, where does that leave a small startup?

It goes back to my one of my themes about building a business - focus on what you can control and don't try to find a savior by looking at external forces.  What this means is figure out what your core business is and take a scalpel and lop off the areas where you do not see an immediate return on investment.  If you believe you will find a strategic partner to buy you, forget about it because every other private company that has been funded during the last 5 years is trying to do the same.  In addition, I can also promise you that any large or small company looking to buy a startup does not also want to pick up a large burn rate.  Even on a private-private merger, most of these VC-backed companies will do nothing unless the deal is cash flow positive on Day 1.  Do yourself a favor, build an expense line where getting profitable can happen with the cash that you have.  This way you can control your own destiny and also even make yourself a more attractive strategic partner to any company in the future.  One other point for all of those advertising related startups-go find some other revenue streams like becoming a platform for partners via cobranding or hosting fees which scale with usage or find some other premium model because the ad market is drying up and the dollars will flow to some of the larger, more established platforms.

Share and Enjoy:
  • Print
  • Digg
  • StumbleUpon
  • del.icio.us
  • Facebook
  • Yahoo! Buzz
  • Twitter
  • Google Bookmarks

Post Author

This post was written by who has written 358 posts on BeyondVC.

2 Responses to “More reasons to watch your burn”

  1. Jeff Deasy Oct 27, 2008 at 11:53 am #

    Your post offers some great advice. Entrepreneurs with startups should always be doing what they can to grow revenues through means that either cost very little or can be achieved at no dollar cost with the application of some sweat. Why should anyone invest in a company that has not taken steps for growth that don’t require capital?

  2. Kevin C Oct 29, 2008 at 8:38 am #

    Revenue considerations have always been a top-tier priority for us. Even before going into the fall we knew we had to find non-ad generated revenue sources as not only a means to keep our growth strong, but also make us more attractive to potential partners. Every project we plan for we outline revenue potential — selling product (pdf versions of content), selling access (you must be a premium member), selling service (customer service returns premium user feedback immediately), or selling recognition (become a premium member and get a little ‘badge’ next to your name.

    That’s just on the consumer side. B2B potentials always include, as Ed pointed out, Cobranding opportunitis and licensing opportunities. Content Providers (magazines, newspapers, etc.) are alyways looking for great content to provide!

    Cheers – K

Leave a Reply