The past few months have demonstrated once again that soaring economies and know-all financial systems are subject to the laws of gravity. This has affected the world of start-ups and entrepreneurs as well. Start-ups that fortunately raised money some months ago are being told by their investors to buckle up, start-ups that are in the midst of raising money are wondering whether they will be successful in raising money and if so at what terms, some less fortunate ones have shut shop while wannabee entrepreneurs are having second thoughts.
So what?s a start-up to do in these times to attract the attention of investors?
First, VCs in India are sitting on raised funds so capital is not in shortage. What is in shortage, quite naturally, is the gung-ho attitude of the past. However, sentiment is everything in human decision-making and nowhere more evident than in the world of investing. Right now, the sentiment is in favour of being extra cautious and diligent.
Second, start-ups, while being naturally optimistic and confident, need to understand that customers, suppliers, partners and investors have all become coy for a real reason. And this coyness isn?t going away anytime soon.
Third, the only way to weather a storm is to hunker down, well-protected. The only protection for a start-up is to ensure that there?s adequate cash available to keep the home fires burning. Notwithstanding Bollywood?s recent claims to the contrary, cash is king! Inflows every month have to exceed outflows. Hunkering down to business is critical?ruthlessly focusing on what needs to be done, ensuring that all non-revenue generating activities are eliminated, timelines are met and ensuring that customers and partners are happy. The longer you can stretch whatever cash is available, the better it is.
Fourth, necessity is the mother of invention. The times are such that creative ways of executing business plans are required. With no advertising rupees, how does one get the start-up?s word out? Barter with some websites? Activate the blogger community? It is always cheaper and more effective to get written about by others. Why not attend industry events like the forthcoming TiE Entrepreneurial Summit to meet potential customers, investors and partners? Should some stock and/or deferred pay be offered to employees for taking pay-cuts? Can the landlord be motivated into not increasing the rent? Should leasing of equipment be considered? Open source technologies? Higher variable pay for all, especially for the sales team? This is the time to demonstrate that the start-up can be creative and imaginative.
Fifth, realise that hope is not a strategy. In other words, unless there?s a clear path to generate cash, chances are low that you might not be the apple of the investor?s eye. Measure your business objectives against timelines required to achieve them, resources required and the corresponding set of activities that need to be performed to achieve the objectives. Break-up each of these on a monthly basis and see how much time and money you need to achieve the goals. Remember, the goals need to be clear, measurable and add value to your start-up. These goals therefore have to be set against market-based criteria such as sales, customers, partnerships and so on.
Sixth, the entire management team needs to be fully aware of the company?s situation. Every leader needs to contribute his/her might towards improving cycle-times in their spheres of activity. They can easily do this if their comments are valued. In turn, they will be able to set expectations from their team members. The company culture needs to be therefore transparent and fair. In tough times such as these, it becomes tempting to pretend all is hunky dory and shut oneself off from the surroundings, thereby discarding the individual and collective wisdom of the team members.
Seventh, be realistic. This requires the leadership to listen intently and understand the signals from the environment. There?s a thin line between heroic doggedness and reckless perseverance, hindsight often being the only way to judge them. It is better to live and fight another day than to foolishly keep pursuing a line of attack when all indicators?customers, investors, partners and perhaps even employees?point otherwise.
Eighth, none of the above seven points are new or radical. In times such as these, it is, however, important to renew the start-up?s vows to focus on the basics detailed in these seven points. Because the fundamentals of company building never change. Genuine entrepreneurs don?t opportunistically time the formation of their company?they do it because they want to and believe they can. Likewise, genuine investors play for the long term, keeping an eye on the stock market. But both always focus on the basics.
Sanjay Anandaram, a passionate advocate of entrepreneurship, is a faculty member, advisor and mentor. He?s involved with Nasscom, TiE, IIM-Bangalore and Insead. He can be reached at sanjay@jumpstartup.net. The views expressed here are his own