Thursday, October 23, 2008

Ready, Aim, Aim, Aim, Fire

Companies should always be careful about how they spend their money, but the reality is, they sometimes get lazy. In these very challenging times where fund raising has become difficult, it is critical to spend cash wisely. I bring this up today because I am thinking about all of the companies that raised money in the past 1 or 2years. One thing I would bet on: most (if not all) of these management teams wish they could rewind the clock on how they spent their venture funding. As a venture capitalist, one of toughest choices I have to make is when to encourage a company to ramp headcount and ultimately spending. It feels good to grow headcount, move to a bigger office, take on more projects and vertical markets. But in times like these, it is worth remembering how important it is to wait until your business really understands the market (and customer adoption rate of your technology or service) before ramping spending. One of my partners uses the phrase "ready, aim, aim, aim fire" to describe the process for growing your business. Resist the urge to grow your business headcount (and related expenses) until you have HIGH confidence that you have the right product and the customer base is ready to buy. It is so much easier to grow your busines than it is to shrink it.

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