To Start or Not to Start

Posted by Joseph Ansanelli on Dec 2, 2008 in Startups | 2 comments

 

Given the world economic situation, a lot has been written about what to do if you are currently running an early stage, pre-profit, private company.  Check out what Sequoia and Benchmark have to say.  

Unfortunately, there has been little to no discussion about whether to start a new company.  

While the challenges of starting a company in the midst of a downturn are obvious – less spending, layoffs, harder to raise capital, and many more, it turns that while not for the faint of heart, it is not impossible to successfully start a company during a downturn.

Microsoft and Apple were both stared in the mid 1970s during double-digit inflation, super high interest rates, oil shortages, high unemployment and slow economic growth.  Cisco had 9 employees in 1987 when we experienced one of the worst single day drops in the stock market. 

When we started Vontu, it was late 2001, we were a year into the burst of the “.com” bubble and only weeks after the terrorist attacks of Sept 11.   Here are some lessons we learned about how we approached the problem and turned it to our advantage.

1. Start with a long-term commitment to building a real business.  

If you have courage and commitment, you are at an advantage.  Many people show up during the good times to say they are entrepreneurs when really they are just speculators trying to make a quick buck.  If you are committed to the long term and building a company capable of getting to $100 million in revenue over the next 5-10 years, there is benefit to having less competition for everything from funding, people, office space, services, etc.  That said, be sure that you are in it for the long tough rode that lies ahead.  

2. It has to be a top priority for the customer.  

We talked to lots of prospects that said data loss prevention was a top priority – not a nice to have but a need to have.  (We did not come up with the category name until a few years later, but more on creating a category in the future…).   We targeted the Fortune 1000 and asked prospects about the problem of how confidential information was being sent outside of their company, and what was the problem’s relative importance compared to everything else on their agenda – including cost cutting.  One Chief Security Officer (CSO) of a Fortune 1000 told us the following story (paraphrased).  

“We are in the midst of layoffs and have a team of people, locked up in a room 24 hours a day reviewing all outbound email for people trying to steal stuff on the way out the door.  And also a major newspaper recently published an internal email from our CEO to its employees.  The CEO sent me a note asking what we could do in the future to stop that type of information from getting out too.  So yes, this is pretty important and I would spend money on something to help automate the solution…”

When the CEO is asking for something, that’s a good sign.

3. Hiring great people is a lot easier. 

Once you decide to start, hiring, engaging and leading a great team is your most important job.  In a downturn, lots of great people get laid off, quit their jobs and many are looking for something new because their big company has gone into cost cutting mode – which is not usually very fun.  In a downturn, there is less competition for great people.  People tend to want to work with great people building things versus cutting.  (More on building great teams in a future post…)

4. Funding is a competitive advantage.  

It is true venture investors are less likely to invest during downturns.  Which means if you can get funding, you are at an advantage. There are likely to be fewer “me too” companies.   Investors would call to tell us how new companies tried to raise money a few years after us saying things like “We are like Vontu, but for the small business market or We are like Vontu, but less expensive”.  We’ve all seen categories that have 20 companies funded.  How many social networks have come and gone?   Because we started in the downturn, there were only a small handful of companies funded and many of them started 1-2 years after us and could never catch up.

5. Maniacal focus on frugal yet quality execution.

Once you have funding, a tough economic environment forces you to focus from day one.  And that maniacal focus from the start helps to ensure greater success.  When you have only 24 months of cash, everyone on the team should know the three most important things you need to achieve to get the next round of funding.  For us it was 1. Hire a great core team; 2. Build the first version of our software; and 3.  Get 3 brand-name, reference-able, paying customers (no freebies).   

We did all this (and more), never looked back and now we have 50% of the Fortune 100 as customers, hundreds of awesome people on the team, and were acquired by Symantec for $350 million last year.   To start or not to start?   The answer to that can only come in hindsight, but you never know unless you try.