Sunday, June 22, 2008

What Start-Ups Should Do About the Recession

As a venture capitalist, I am dealing with this question continuously with all of my active portfolio companies. At board meetings, the conversations inevitably center around whether to reduce spending, and deal with the commensurate slowdown in business growth, or whether to stick with an aggressive growth plan while others are hunkering down. Truth is, as tough as a recession can be on an established company, it can be fatal to an early stage company. One of the things board members get paid for, of course, is making the tough calls. So, in the last 60 days, I have been giving the following advice to my portfolio companies.Secure FinancingThis is pretty straight forward. If your company will need capital in the next 12 months, I would recommend obtaining capital now. Yes, the extra cash could wind up being unnecessary. On the other hand, if the economy gets worse, it might be difficult to find capital when you need it.Hire a CFOThis is one of my pet peeves as a VC. Too many start ups, and even some investors, don't appreciate the value a competent finance professional can provide. This is not the time to skimp on financial oversight.Re-Evaluate Your Sales TeamIs your VP of Sales up to the task? Too many CEOs delay making a change in the sales role until it is too late. My advice: establish firm targets for the quarter and this time don't accept excuses!Bring on a Top Notch Independent Board MemberThis is a great way to expand your network of potential customers and capital providers. In addition, a board member who has been through tough times can be a valuable asset in 2008.

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