4 Startup Tenets that Won’t Survive a Downturn

4 Startup Tenets that Won’t Survive a Downturn

4 Startup Tenets that Won’t Survive a Downturn 150 150 Basis State - We Find Exits for Software Companies

I spent the go-go days of the late 90’s in a rare Internet startup for the era. Due to groundwork laid before I arrived, we were profitable. We declined most of the VC we were offered, watched our overhead, and grew methodically. We were misfits of the so-called “new economy,” and we sold for 30x capital invested right as the bottom fell out of the Internet industry.

What I learned from this experience is that industry dogma emerges when startups are hot. And that same dogma is discarded just as quickly when things collapse.

During the recent startup boom, we’ve seen a new dogma emerge. When the cycle ends, I’m expecting the following 4 tenets to disappear along with the good times:

1. A million dollars isn’t cool, a billion dollars is cool

Call me old fashioned, but I think a million dollars is cool, especially if you invested far less than a million dollars to earn it. Somehow, we’ve arrived at a point where “real” entrepreneurship is about pursuing long odds of massive outcomes, and anything short of that is dismissed.

Long odds work fine across a VC portfolio, which is probably why they have become the standard. But just because the formula works well across a VC’s portfolio, doesn’t mean it works on an entrepreneur’s single asset.

I mostly cringe at this tenet because I think it does an enormous disservice to first-time entrepreneurs. Launching a longshot, burning through someone else’s capital, then shutting down is a terrible way to cut your entrepreneurial teeth. Successes are just as important to learning as failures. If you get scorched so bad on the first one that you never try again, how is that “real” entrepreneurship?

2. Never give up

Giving up has its place. I have experienced that startup phenomenon where one day the future looks bleak, then the next day it doesn’t. But I have only experienced it when I knew that fundamentally, we had something of value. I have also experienced being in a hole with no way out, where the best move was to look for a soft landing.

As a steward of other people’s capital and time, there is nothing heroic or romantic about squandering either on a lost cause. Sometimes, the right thing to do is to redeploy what’s left into something more productive.

3. Hustle & grind, always

Speed is critical to startups. Given the fact that big incumbents have all the people, money and customers they need to squash new entrants, you could even say that speed is the only advantage at startups. I love the hustle & grind.

At the same time, two of my most positively pivotal moments came when business got so bad that I stopped hustling entirely. I stepped back, stopped selling, thought hard about the business, and made fundamental changes. Had I just kept grinding, I would have undoubtedly ground the business into dust.

You can’t hustle your way out of a bad business model. Sometimes, you have to pull back resources, stop, and think hard before you make your next move.

4. Profitability is idiotic

I recently watched a prominent VC tell an audience, “founders who think about profitability are idiots.” Verbatim. His logic — SaaS companies sell on a multiple of revenue, so you should plow all your available resources, including profit, VC and debt, into that metric.

I understand the math, and it works as long things are going well and continue to go well. But you can’t gracefully step off of that treadmill if you stumble. Most startups (and markets) stumble, so again, this tenet is designed for the exception not the rule. A plan for profitability is far from idiotic; it can be the difference between success and failure.

Wouldn’t it be great if we could boil startup success down to a handful of universal truths? But startups are working with too many variables to abide by dogma. The dogma only emerges when startups are so hot that hype drowns out complexity, which never lasts for long.