The Valley, which has so far been most unaffected by the downturn in the economy, may be reaching the end of it’s golden thread. Sequoia Capital, one of the largest Venture Capital firms in the Valley, had a meeting with their portfolio companies advising them to “tighten their belts” according to Om Malik of GigaOm.
The message delivered to those in attendance was that things could get a lot worse than people think, and it will be a more protracted downturn. To give a historical perspective, Sequoia had a similar meeting back before the last bubble unraveled burst. We know how that turned out.
Hot on the heels of Sequoias meeting, angel investor Ron Conway sent an email to the CEOs of his potfolio companies advising them, in the words of Mike Arrington, of a bleak immediate future:
You should lower your “œburn rate” to raise at least 3-6 months or more of funding via cost reductions, even if it means staff reductions and reduced marketing and G&A expenses. This is the equivalent to “œraising an internal round” through cost reductions to buy you more time until you need to raise money again; hopefully when fund raising is more feasible. Letting go of staff is hard and often gut wrenching. A re-evaluation of timelines and re-focus on milestones with the eye of doing more with less will allow you to live many more days, and the name of the game in this environment in some respects is survival”“survival until conditions change.
My recommendation to all of you entrepreneurs out there is to get off the negative sentiment treadmill, step up, and lead. The people working for your company are likely confused, concerned, and overwhelmed with all the noise in the system. In the near term, building your business will likely be more challenging on a number of dimensions. So what – that’s the normal cycle of business. You don’t need to be a blind optimist and spout happy talk, but you do need to have a clear sense of purpose and goals for your company. Leadership 101.
Times get tough. The people that approach the challenge with some clarity in their thoughts are the ones that will emerge on the other side stronger than ever and positioned to be the next generation of winners in this space.