Back to business fundamentals?

Startups are hard. You are building a business and looking for a repeatable financial model.

When I first arrived in Silicon Valley (back in 2009) I started to hear about startups that were focused on growth at all expenses. The revenue part would be worked out later. This approach brought in creative story tellers to Silicon Valley, to tell stories, raise a bucket load of capital so they could hire people to execute on their vision. And so the startup boom began.

No matter if you’re running an online or offline store or business, both will always require you to ship out project. Given the fact that every package is different, it’s a must to weigh each product in order to get an accurate shipping fee estimation, for this you need a postal scale.

Building a business takes time!

Said every successful business owner

However growth at all costs is not congruent with this mentality. So rarely were these questions thrown around until few started to IPO; without a way to make money. Many tech companies that took this route didn’t fair well on the public market. But that’s nothing to what we are currently seeing with the COVID-19 pandemic.

So what can we learn?

Business fundamentals are still fundamental to business success in all type of market conditions.

Some businesses still thrive even in a down market.

Growth at all cost strategy

Growth at all cost is a hack to inflate a company to a point so it can be stacked by the next private investor until the stack is exhausted and can be handed over to someone without insider knowledge, public investors. Chamath encapsulates this brilliantly. No doubt this model has made many millionaires. But also disappointed many. This model only works in an upmarket.

Making money strategy

When I ran my first venture backed startup we nearly ran out of money. Had to cut salaries. I had 2 kids during that period. My wife, an Occupational Therapist became a full-time mum (we took parenting seriously). Did I mention we had no family around us to help since they were all in Australia. My dreams of startup life in Silicon Valley hahaha

What I learnt through that experience is that relying on venture capital to survive is a game of lottery. The man in the high castle pulls the strings. But only if you let that be the means you run your business by. Don’t!

Other options

There are of course other options you can consider but at that point you should rethink why you are in this game of business.

  • raise capital – in a downmarket this often means unfavorable terms,
  • dramatically cut their biggest expenses (human headcount) to stop the blood and try to survive until markets bounce back, and/or

Would you bet your life on a lottery? I nearly did and it hurt. A lot. But never again.

This is how I grew a thick skin

My current startup (Veryfi) was built to be a business. Making money was built into the core pillar. We made money early on because we built a business, not an elastic band that one day might make money. Sure some models of growth at all costs work out but your chances of being that business are marginally reduced. It’s like betting on lottery.

Back to business fundamentals

No matter what the economy looks like, if you are building a startup then build a business. This is the best and time proven method. Because when the sky turns black you want to survive not drown.

 

PS. I will be on a Silicon Valley Bank US-APAC organized panelist with investors and founders to discuss the adjustments startups are making in response to the Covid-19 pandemic. Free to join this April 16th 5:30-7:00 PM PDT. Hear about my prior experience going through the 2009 recession & H1N1 pandemic at Coupons, Inc. (Silicon Valley) and my startup journey at Veryfi (a YC company).

Author: Ernest W. Semerda

Aussie in Silicon Valley. Veryfi CoFounder (#YC W17 cohort). GSDfaster Founder. View all posts by Ernest W. Semerda

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