My November column in Mint
So it is a slow down, perhaps even a recession, or if the prophets of doom are correct in their prognosis – it is that once in a lifetime occurrence, an economists delight – a global depression.
Whatever it is, the news is not good for those doing a start up. Not because growth will slow down to under seven percent. But because many start ups are doing innovative stuff where the revenue will come only a couple of years later and they need external funding till then. Funding that has become a lot harder to get as compared to a few months ago.
So as an entrepreneur doing a start up what are the things you could do to cope and ride through the situation? There are no "one size fits all" solutions – each company is different, each market is different. Having said that there are five things you could be doing.
Don’t panic : This is the fifth slowdown I am witness to during my entrepreneurial career over the last eighteen years . All of them have shared the following characteristics – a stock market correction, drying up of capital and credit, a demand slowdown and softening of business confidence. None has lasted more than two or three years. In India a recession means less than five percent growth for a year or two while a slowdown is six percent growth. These are healthy growth figures by global standards, however in an India that has gotten accustomed to nine percent growth it is viewed as a disaster if one were to go by media reports. Sure things are bad in the economy but we have been there before and come out of it. This too shall pass.
Recognise the problem early : Internalize the understanding that times have changed – the party is over. There are many start ups that will not survive the next three years. What you have to do is to ensure that your company not only survives but also grows and thrives. If you don’t recognize the problem early you will not be able to solve it. At Naukri we raised venture capital in April 2000 and the market began to correct almost immediately thereafter. We immediately stepped on the brakes and put all the money into fixed deposits in the bank – we did not spend it foolishly on big budget advertising. The rest of the market was in a state of denial for over six months saying that this was a temporary correction and things would be fine soon. It is because we recognized the problem early we were able to conserve our cash and ride through the meltdown. So assess your situation. Take stock of your cash availability, revenues and expenses. Assume you cannot raise any further capital for the next two to three years and then prepare a plan for survival and growth.
Take colleagues and employees into confidence : Having recognized the problem discuss the situation openly with employees. Let them participate in suggesting alternate courses of action. It helps to have many heads working at the problem. Also you get a buy in from the whole organization. When we tabled the situation the company was in, in 2001 senior colleagues volunteered a 30% salary deferment without being asked – it helped that we had a generous ESOP programme. If people love to work with you and they believe it is their company they will sacrifice without being asked.
Sharpen your value proposition and accelerate the sales programme : This is the single most important thing you can do in a recession. Push back the esoteric products that will bring in revenue after two years. Focus on creating immediate value for customers. Get the sales in today. And then go out and lead from the front and make sales calls yourself. This will not only give you deep customer insights to help you improve your offering continuously but will also motivate the sales team. And remember as the founder you are probably the company’s best salesperson. Build out the sales organization as you get sure about the value proposition you offer to clients.
Evaluate every expenditure : When cutting costs during a recession there are no sacred cows in a start up. Look at every expenditure. Don’t travel when things can get done by email or phone. Stay in cheap hotels when you do travel. Share a room with a colleague. Go by train if you can. Shift to cheaper offices if that is what you need to do. Do barter deals and alliances, wherever possible, if you need to buy something. Don’t spend money on advertising that doesn’t result in sales or enquiries. There are probably a hundred areas to save money if you constantly ask yourself a few questions. Do I really need this? Is there a cheaper way to achieve the same objective? Can I do this later? How will this improve sales? What difference will it make if I do not do this right now?
There is an opportunity in every slowdown. No doubt funding is difficult to get, customers negotiate harder and sales cycles become longer. However competition too gets adversely impacted – and that’s good for you. This is the time to get quality talent into the team – so raise the bar on hiring. More importantly if you spend time sharpening your value proposition and make it more compelling you will find that sales will happen and you have a good chance of sailing through the meltdown. So don’t quit - lage raho.