Operating an Internet Start-up through Bubble II

Image via WikipediaMany of us Bubble #1 veterans are having flashbacks on what it was like to run a company through a capital market crash followed by a recession.  I remember vividly what it was like to run DigitalWork through the 2000-2002.  I will never forget the 3rd week of our IPO roadshow in April 2000.  After we realized the IPO was not happening, we spent the time between meetings in the back of the limo cutting every long term committment we could including leases, advertising committments, software licenses, outside contractors, etc. in order to preserve capital.

Here are a few lessons learned:

1.  Have 1.5 - 2 years of capital on hand.  If you don't see below:

2.  Raise now.  Look to your key partners and customers as potential investors.  If you are so lucky to raise money, be reasonable on valuations and assume it is that last capital you will be able to raise.   

3.  The consumer/small business will cut spending first, and corporate spending will follow.  So don't try and change your consumer oriented business model into a commercial software model thinking that you will ramp revenue.  By the time you change, corporations will stop spending.  Stick to your guns and see number 5. During 2000 many companies, including DigitalWork, tried to sell the infrastructure they built to serve consumers to corporations.  By the time we adjusted it was too late - corporations stopped buying software. 

4.  Cut all non necessary expenses.  Operate profitably if you can.  Duh, but when you think you have cut enough cut 20% more.  It will force you to do fewer things better.  Fire your PR firm, advertising agency, retained lawyers, retained recruiting agencies, external consultants -- you get the picture.  Let expense follow the revenue.

5.  Sell stuff.  In the Internet bubble era we gave everything away to build a "brand" and "get big fast".  You see some of that today.  Once you put a price tag on your product/services you'll figure out what you really have.  In these times fewer, paying users are better than "lots of eyeballs".  At DigitalWork, we shelved all activities that were not recurring revenue generating.

6.  As a leader, stay solid, don't panic.  Focus on what you can control, not what you can't.

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Comments

[Jed]

Rob, nice entry on a not-so-nice topic. You should have cut the limo and taken a taxi to preserve capital :)