How this Financial Crisis will affect Seattle Start-ups

This is an interesting time for the financial markets. It seems that every day we find out new information or some new aspect to the financial crisis that makes things seem that much worse.  Aside from my dwindling 401k rollover from when I had my last real job (in 2004), I have been spending a lot of time thinking about how this financial crisis will affect the start-up environment in Seattle.

Here are some things that entrepreneurs and business owners should be thinking about:

1. Your investors will be watching (more) closely. Remember that your investors are your biggest fans. Not only do they believe in your business, but they believe in you and your team. Despite this, you may notice they start to ask tougher questions as well as challenge existing assumptions and plans. Your best move is to adjust to this heightened sensitivity and anticipate it by exploring more “what if” scenarios to develop contingency plans.
2. Anticipate a slower funding horizon. There are a large number of companies in the region that are in their seed or early series funding, whose growth plans anticipating subsequent funding events. These companies should take a look at those funding plans and start planning for a possible delay in funding. There will be exceptions out there, but by and large companies can expect a much tighter decision process for additional money.
3. Re-evaluate existing business models. I will not pretend to know how long and how deep this economic period will be, which is exactly why I suggest that existing business models (especially the “build it and they will come” models) of record should be re-examined.  Business plans that defer revenue in favor of alternate success metrics should begin thinking about accelerating the revenue plan.  At the end of the day, one metric will win: Revenue. Only those that demonstrate traction will “buy time” to live through a slowdown. Some may find the money dry up, and have to take extreme action.
4. Do more with less. Having been a part of many start-ups during the rapid growth phase, there is a tendency to “get scrappy” and delay thinking about efficiency and optimization. I can recall a number of critical projects that “got the job done” but were anything but efficient. The common thought was that it will get streamlined later, we just have to keep moving. Today, that might be the wrong answer. Companies should look hard at those activities and processes that are the “engine” for how they do business. Get serious about doing them better, more efficiently, and with less human intervention. Automate and systematize as many of your processes as possible.
5. Prepare for a cash flow crunch. Every company runs differently. Some depend more on lines of credit as a tool for bridging receivables to payables. Start doing your homework to understand the terms of your LOC.  Does it expire, when is it renewed, under what terms can it be withdrawn or reduced by the lender. Once you understand the situation with this credit line, take the actions necessary to protect against the unplanned event that cash becomes less available in the future. Search for areas that you can “tweak” to better your position. As an example, sometimes something even as trivial as changing your company pay cycle can have a dramatic impact on cash requirements in a given month.
6. Assess your true headcount needs in 2009. Given the last 5 points of this blog post, I believe companies need to get very rigorous about where they need full time headcount in the coming year. Oftentimes, companies think they need to take on the high base salary of an experienced specialist in a given area in order for the company to gain the benefit of that expertise. Companies should consider using interim positions and consultants to build & develop an in-house expertise or department; with the plan that they transition to and train less senior employees. Not only will you gain the same benefits as a company, but you will be helping develop the skill sets and experience of your employees, creating loyalty and raising morale. Long term, companies will find they will have achieved some of the same business objectives they could have otherwise, while better staying within their financial constraints.

I believe that 2009 will be a great year for many companies. We here at Acture plan to be part of helping our clients manage through these challenges, and focus our efforts on accelerating their success.