I might be calling this a little early, but in times such as these, its better to be early than dead. Now that the Sensex is 30% (Nasdaq 25%) off recent peaks, and US economy heading downwards, here are some lessons from the last time we went through this:
- Cash is king – raise money if you can; dont vacillate on valuations
- Put your blinkers on, and build the business – avoid distractions
- Focus on the customer – build what you can sell in near term
- Building brands can get cheaper – but will still take cash
- Enterprise sales (software or services)? Count on longer sales cycles
- Beware of old receivables – a lot will evaporate
If we do get to a full bust, I will come back with some more. Remember, the great companies of today were built on surviving the last bust. Here’s your chance.
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Vyaas,
If you have a better client who pays, then drop this cheap one. But one of the interesting things that happens in a panicky marketplace is that its only then that there is a very clear cut divide between what is essential and what is good to have. And if you are building something which is “good to have”, God be with you to rescue you. if you are building and selling something which is essential, you wont have to do it for a loss.
Deepak/Alok,
If your customer aint paying drop him like a potato….
If your customer brings the price down drastically what do you do, kindly advise. Do you get the customer if you barely break even(nearing loss)? or leave him….
Vyaas
bgupta – software services is a tough area to raise money – most people believe that that business has played out and the players have sorted themselves out. it would be useful to look at the client base and kind of work you are doing for them, and figure out the “business at risk” – whats critical to them versus whats good to have.
M&A – thats an interesting one. the question is where are you going to fund that from – if its from equity, the assumption is that others will fall harder than you will. If its cash, remember that its going to be harder and harder on the financing front due to liquidity issues. If you can finance it internally, sure – but very often, those are not the most defining ones. Just plain consolidation (cost consolidation, cant survive independently) – yes, some of that might happen, but that does come with an even higher number of mortalities.
In a recession, don’t just stop at what customers need; figure out how they like it bundled. Here is what an IDC survey has to say to enterprise IT vendors.
The reference to valuation here also reminds me of a brief exchange I had with a startup team that focused merely on valuations, without rationale of course. Good example of how-not-to-be. I have a detailed chronicle of it here. It could be a useful case study for founders as it could as well familiarize them with pre-valuation due diligence process.
They say experience is a tough teacher that gives tests first and lessons later. Last checked, the startup hasn’t made much headway. Didn’t hear of any new customer wins either. Hope they’ve eased up a bit now.
Alok, I am all ears. Also dropping non paying customers like hot patatoes might just make sense. Invest your time only where it shall bring value (read money).
Our team has also delibrated on a plan to counter what just might be around the corner.