Startups survive because they can live on the scraps of a market (a niche) that larger competitors ignore or would be unable to pursue profitably. This is doing less with less.
Doing Less With Less
“Less is Often More.” Christoph Martin Wieland
I see so many blog posts lately about how to do more with less. I get announcements for events on how to do more with less. It always seems like a good idea.
I don’t think it’s possible in a downturn if you have already been paying attention to your personal and team productivity.
The trick is to minimize the amount of wasted effort. The challenge is to launch new initiatives and projects that build on existing relationships, knowledge, and successes. I was not a huge fan of dogster as a business because I had felt that the founders had been fundamentally unserious. But I was extremely impressed by a post on their blog “10 Tips for Building a Profitable Business.” Some key points:
1. If being a business person is not your goal find a business partner immediately. Without someone on the team that relishes sourcing customers, closing revenue deals, perfecting sales messages, it will always be an afterthought.
I have seen it happen too many times that a technical team believes that they can invent their way out of a problem. If you have a customer you can be extremely inventive. But if you don’t have customer interest it’s difficult. Or it’s not yet the right time to give consideration to the business model. You can have a sequence of models you may want to try, but I think you have to have a plan for how you will make a profit before you found a firm.
2. Consult anyone you know that has run a earnings-based business (VC funded companies are rarely helpful here). The concerns of a restauranteur, law firm, or even landscapers are entirely applicable when it comes to long-term strategies for profitability. Anyone running a business for years will know volumes about hiring, cash flow, and compensation.
I think is overly broad, in particular software and Internet companies have a very different physics from manufacturing and retail businesses but have a lot in common with service businesses. But it always helps to compare notes on the nuts and bolts of running an earnings based business. This is one of the advantages of Bootstrappers Breakfasts as well you have a chance kibitz with other entrepreneurs who are focused on organic business growth based on customer revenue (vs. how to raise (another) investment round).
7. Don’t lie to yourself. We find a lot of entrepreneurs practice their elevator and investor pitches for so long they believe their rosy sounding forecasts are actually going to happen. The only thing you know is what you’ve proven. Everything else are items that still need to be proven or listed as false starts. While it’s important to strive for the big potential, it’s critical you protect yourself against the much more likely realities.
This is extremely difficult. Entrepreneurs are naturally optimistic. Russell Ackoff’s “decision record” methodology is a great way to calibrate you and your team’s ability to plan and forecast. When you make a decision have everyone write down what they believe the likely outcome will be in what time frame. Collect what they have written so that there is a record. Check back every week, month, or quarter depending upon the scope of the decision. When you compare what actually happened with your prediction it allows you to get better at appreciating the likely impact of decisions that don’t have fast feedback.
One of the real risks of “doing more with less” is that you are tempted to try new things–many new things–as the one roll of the dice that will solve this month’s problems (or this quarter’s or this years). I have seen a number of teams succumb to a plan based on an untried method or technology and embrace it by “testing the depth with both feet.”
Another variant of doing more with less is taking advice from venture capitalists about how to stretch your funding instead of raising another round. I blogged about this in “Save $189 On Your Next Breakfast”
When you are invited to a roundtable on “How to Manage the Downturn” that’s held at the Stanford Park Hotel in Menlo Park and put on by folks who until recently were focused on “get big fast” you have to wonder. It’s unusual to have to spend $189 to get advice from a VC in a crowded room.
That same $189 will pay for more than a year of breakfasts at the restaurants where we meet, and you can compare notes with other entrepreneurs who understood how to manage their cash flow before it was trendy.
“Renegotiate any contracts that you can. Everything is negotiable.”
If this means that you are no longer viewed as trustworthy the money you save may not amount to much. When everyone is hurting I would be very careful about the contracts you commit to, whether written or verbal, but I would be even more cautious about breaking your word. Goodwill and reputation are very hard to recover once lost. And people don’t tell you when they stop trusting you, especially if it’s based on the way you are treating someone else or another firm.
Our Plan: Doing Less with Less
Doing less with less is our plan for 2009-10:
- Kill the initiatives that aren’t working,
- Experiment cautiously,
- Be as careful of our social capital as our fiscal capital.
Update Thu-Oct-18-2012: The original dogster link is gone but it’s still available from the Wayback, I have updated the link to http://web.archive.org/web/20100929014752/http://blog.dogster.com/2008/11/18/10-tips-for-building-a-profitable-business/ h/t to Steve Wasiura for pointing it out.