This is part two of our coverage on today’s Downturn RoundTable hosted by VentureBeat. For Part One, which details the Venture Capitalist panel, click here.
The Entrepreneurs
In a panel moderated by Kara Swisher, Toni Schneider, CEO of Automattic (the company behind WordPress), led off by saying that he wished this kind of “panicky” advice had been around for the last bubble, explaining that his startup at the time didn’t react quickly enough to stay afloat. Nirav Tolia, co-founder of epinions, added that his company had fallen prey to similar mistakes in the last bubble by investing in growth (in terms of employees and office space) before it was necessary.
Mahalo’s Jason Calacanis detailed his experience with laying off employees, saying that it should be done in one fell swoop rather than in incremental steps, which only serve to increase fear and uncertainty. He expressed how difficult it is lay people off, and urged executives to do all they can for their past employees (vesting stock whenever possible, writing letters of recommendation, etc.). He said that while CEOs may not be able to predict economic shifts, they are ultimately the ones at fault if a company has to lay off workers.
Tolia also related the cost cutting measures epinions had to undertake in the first bubble, emphasizing the importance of having someone who had “been through this sort of thing before” for advice and calling Bill Campbell (who had weathered past downturns) “a godsend”. He likened cutting costs to dieting, explaining that companies should be making “lifestyle changes” so that these problems don’t arise again instead of making cuts and then falling back into the same costly habits, only to have to downsize again in the future.
Slide CEO Max Levchin said that he has never been forced to lay off his workers, but emphasized the importance of being stingy. He attributed his frugality to his “immigrant ethic”, which he says is a great trait to have in a startup co-founder.
Paul Sieben of O’Melveny and Myers agreed with Ron Conway’s statements earlier that companies should more readily consider M&As. He also said that startups should be nimble, able to change underlying goals and start the M&A process early by forming business relationships.
When asked how helpful venture capitalists are when their portfolio companies face economic hardships, the panel had some varied (and not always positive) comments. Levchin related his experience with BlueRun Ventures (which has invested in both PayPal and Slide), saying that the VCs there have been very supportive, even when he has had to change business plans.
Toni Schnier said that Levchin has been dealing with ideal VCs, but that there are unhelpful investors who will constantly give advice (often about ideas you’ve already thought of), and that thsese are the ones who will get on your case as soon as things start looking shaky. Calacanis said that entrepreneurs tend to ask VCs for too much advice, which is a mistake, going on to say “VCs are VCs for a reason” and likening them to bankers. Calacanis also said that while the VC panel claimed it would stay open for business, they will instead form a “circle of wagons”, focusing on their winners and shutting down losers.
And while they spent a great deal of time talking about the hardships many entrepreneurs will be facing, the panel emphasized the importance of remembering why they had come to Silicon Valley in the first place: to build their dream.
Each panelist also offered some specific tips for success:
Max Levchin – Don’t listen to anyone, nobody really knows what’s going to happen next. It’s better to be contrarian in times like this than not. Just hunker down and build a company. Silicon Valley is about leveraging crazy hopes and occasionally winning.
Paul Sieben – Have backup plans.
Toni Schneider – Consider open source. It’s a great way in slow times to keep your project going – people who have time on their hands to keep your dream going.
Nirav Tolia – Over communicate.
Jason Calacanis – Focus on the product. If you’re in a plane and it’s going into a death spiral, look at your instruments (page views, members, etc.). Don’t look out the window.
Robert Scoble recorded this panel using Kyte. You can see the full recordings below:
I like levchin’s advice the best. There’s no answer that works the same for every company cuz every company is different and every company has their own specific situation. Listening to someone else in a different situation can be helpful, but make your own judgment and at the end of the day, make your own decisions, not someone elses.
Peter Epstein
http://www.thewebwar.com
True
– while at the same time, valuable insights can be gained from the success & failure stories of other companies. I particularly like Schneider’s suggestion on ‘open source’ – for cost-effective & sustainable long-term growth. Startups can consider adopting Ruby on Rails and SugarCRM + other easily available open source tools
I was just skimming along reading when I read this and my head went back and my eyes opened as large as they could. As an entrepreneur with a stalled project, a huge dream, and lowered expectations open sourcing is a great idea!
People bag on TC, but we would not waste our time if it was not valuable…
What a surprise, “Web 2.0 Chick” has replied to the first comment SIX HOURS AFTER it was made.
But the real problem is that she misses Schneider’s point completely. FYI, he was saying companies should consider open-sourcing their products, not utilizing OSS within their companies
Definitely great advice all around. We are finding ways to save in things like optimizing code and not over-scaling prematurely as well. Every little bit adds up.
Wei Yang
http://www.easy...com/sell-my-car
w.t.f.?
I agree…
Optimizing prematurely is obvious.
Over scaling is difficult for those afflicted with Entrepreneurial disease…
Never forget the dream ! interesting…
Max and Jason are spot on. I would add – KEEP your day job, but pimp it in the evening after work. As Kevin Rose said, now is the time to really go after it when other companies don’t have funding and scrappiness and hard work count for so muc.
I would say the best advice would probably be to create startups with real business models, not “me-too” duplicates that are so prevalent in Web 2.0. Over the last year, I have seen so many similar “copy-cat” ideas, such as social networking, video streaming, mobile locations.
Totally agree with this. Now really seems like the best time to create something new and useful for the world deployed on the web.
I feel the start-ups that will pop-up during or after the economic downturn will have a different perspective on costs, specifically employment and resources. Utilizing the newer technologies, start-ups will be ultra nimble, with low head-counts, and using cloud-based resources. This will significantly reduced the fixed costs that start-ups get investment for. These new-breed start-ups will have variable costs which sale with usage (and revenue for the successful ones).
I attended the conference. Here is what I saw:
Jason Calcanis: Actually was crying at one point. He said his mom is working at Taco Bell to support his hairpiece maintenance.
Kevin Rose: Was drinking on stage. At one point, he knifed a drifter. Kept saying Jesus told him to keep calling Sequoia.
Ron Conway: Threatened to take stable of teenage boys locked in his mom’s fruit cellar and harvest their skin for soap manufacturer. Said he will use proceeds to find lost food in beard.
Max Levchin: Confessed that he is woman trapped inside terrible executive’s body. Asked for forgiveness. Someone hit him in head with brick.
Paul Sieben: Showed the crowd scene of him dry- humping cattle, which he referred to as his backup plan.
Kara Swisher: Challenged Nirav Tollia to ass slapping contest. The loser: The crowd.
Can’t we just ask the Government for a bailout? Banking, Insurance, Hedge Funds, Detroit, and Homeowners all are. Web 2.0 VC only needs about $1 billion a quarter to keep the Internet economy humming along nicely. Even a small bank wouldn’t accept that level of peanuts, so the government really gets a good value here!
Who cares…honestly…you have to be half mad to start a web company.
If you can find a decent engineer or two to build your dream, you still have to market it and lets face the fact most methods are statuated.
After that if you are remotely successful, your site gets replicated and duplicated over and over again by some company in India or China with 1/3rd the running cost.
Then maybe if you are lucky some VC company will find you. Techcrunch will do an article on you and if your lucky your servers don’t crash. (Does anyone keep track of how many servers the TC has crashed?)
Them the VC company will make you into a money hungry, short term profit cash cow, causing you to lose your market as your users leave as quickly as you came.
Then TC will do another article saying welcome to the deadpool and you will tell everyone how wonderful your employees are.
So lets be honest here. People who go into business online love the rush. The thrill of trying to create the next best thing. To go from a nobody to a net superstar…
How does the bad economy effect people like that? It doesn’t because it just makes it a bigger rush…
Super!! This is exactly how I feel! I mean totally useless!
So now your really not going to make shit working for start ups. In fact a waste of time and energy. Sure a few will hit it, but the silicon valley dream is dead for the vast majority. Sure the boss will get his, but they only gave you a 1% stake
I like Nirav Tolia’s advice of “over communicate.”
Over communicating shows transparency and high regard for the individuals under you.
I listened to their advice by not paying the $189 admission, staying at the office focusing on product development and customer acquisition, and getting the same depressing content free– at home.
Anyway its like asking a Wall Street Banker — what do I do now that my 401K is a 101K? DO you think he is going to be objective?>
Dont forget VC get management fees. They can wait for a better market — you can’t.
Levchin’s urging for a lack of transparency speaks volumes. He has no clue where brands are made and lost. I bet only 10% of slide’s users even know they are slide’s users. At least he got the part where advice is relatively meaningless without being placed in the context of a specific business. One size doesn’t fit all? Nope.
Some points from someone on the ground with Start-ups in Seattle http://actureco...g.com/blog/?p=5
I wonder nobody mentioned offshroing as a viable option for cutting costs ?
http://www.confiz.com