Thursday, November 19, 2009

Ten Tips for Startups to Ride Out the Slowdown

The US Silicon Valley’s venture capital industry, the primary source for venture capital in India, is in crisis with exits via initial public offerings down to a trickle — only six worth $470.2 million in the first nine months of 2008 (Source: NVCA). Trouble with exits implies that investments in new companies also slow down. Indian startups will find it tough to raise fresh funds and the environment will get tougher as growth slows down in the Indian economy. What can startups do to ride out these difficult times. Suvir Sujan, co-founder and CEO of Nexus India Capital, a Mumbai-based venture capital firm that manages $320 million in funds, shares some tips. Sujan has been an entrepreneur who lived through and survived the difficult dotcom crash era (he co-founded and led online marketplace Baazee, now known as eBay India).

Ten Tips for Startups to Ride Out the Economic Slowdown

By Suvir Sujan


Don’t panic! Economic cycles are a part of life.  The best companies are built in the worst of times. If you panic, your employees will panic.
Conserve cash: Delay spending on non-critical things that do not result in revenue generation. Renegotiate vendor contracts, rental contracts, etc.
Improve productivity: Get more out of your team.
Differentiate between high and low performers: Reward high performers. Counsel out low performers.
Optimize the organization: Hire critical talent as they may be available at a reasonable cost. Transition or re-deploy non critical resources.
Continue selling or marketing your product or service: Being in front of customers or vendors builds confidence that you are a long term player.
Focus on growth with an eye on profitability: Since the cost of capital is high today, be cautious on how much capital you raise to invest for growth. Avoid over-investing in the business in the hope for exponential growth in the future.
Communicate with your team internally: Make sure that your team understands that you’re building a lasting and successful enterprise and that some of the cost cutting measures, including layoffs, are necessary for the health of the company. Anxiety levels can be high in tough times.
Act swiftly: Try to deliver any bad or tough news at one shot to the company. Continuous bad news can affect morale and instill fear.
Have fun! Make sure your team is having fun. A happy environment builds loyalty and performance for the long term.

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