Fred Wilson has a great post on remembering the old wounds from the last bubble in 2000. In particular, he highlights the question that many of us have asked at board meetings – are we being too conservative or is it time to step on the gas a little. This is a vibrant area for discusssion – we never know the real answer as hindsight is 20/20 but it reminds me of a post I wrote back in March 2004 called Thoughts from PC Forum – going into attack mode. Here is a little excerpt:
The companies that survived this downturn were excellent at cutting costs, repositioning their products for new markets, and being resourceful and creative to survive. While these are some of the business principles I want my companies to continue to adhere to, I also want to caution that there is a danger in being too cheap. Some of these companies were so shellshocked from what happened during the past couple of years that they have become too cautious. For anyone that has been through the tough years, the only thing I can say is congratulations for surviving but now it is time to take some calculated risks. It is time to get out of the bunker and go into attack mode. Go after your competition, take some calculated risks, and focus on creating some revenue growth. What is different now than before is that most companies that survived the nuclear winter know who their customer is, how much they will pay, and what features and functionalities they may want in future versions. While it may sound like idle VC talk, I encourage you to spend that extra $$$ now as long as you can see the real ROI behind a targeted marketing program, the hiring of a new engineer to finish a product faster, or a new sales person to manage more qualified leads. Once again, take it with a grain of salt, as some entrepreneurs may think this is another VC swinging for the fences, but the point is don’t be too cautious because the opportunity may just pass you by.
Trust me, having lived through the bubble has changed my mentality a ton but I always have to remember that there is that lingering fear in my mind (fear can be good), and that I also have to temper my psychological mindframe with the data we have at hand and the opportunity in front of us. In other words, have a strategy and stick to it and if anything remember that old wounds can haunt you and use the data at hand to help make your decision. If the ROI and return is there, test it out and try it as you never know until you take that step. There is a huge difference in building your company because your competitors are doing it versus building because it is the right thing for your company and the data suggests it. Underinvesting in your company is just as much a sin as overinvesting in it. So find the balance and continue building.
Ed, definitely agree with you – under investing is just as bad. It is a tricky balance for entrepreneurs and investors to agree upon. Sometimes you want to wait to hire until you get things just “right.” The problem is that if you don’t get enough smart folks around you, it may take way too much time to get there. The reality of the situation is that you will always find yourself on one side, or the other. Sometimes you over invest, sometimes you are to lean. The successful company manages to understand when the balance is off and make adjustments – however painful they may be. I guess that is the game we signed on to play. Ok, back to fighting the good fight. Cheers.
Jack Welch says no company ever died by cutting costs to the bone, but you certainly loose market share in big chunks.
I think it’s critical to keep your costs variable and your assumptions governing your ROI in sharp focus. By doing this you can decide on a bold plan but if the assumptions turn out to be different you can easily scale back or elongate your expansion timetable to better fit what is happening. As technology companies get ready to expand into the US they need to be ready to spend money but if we do end up in a recession or other potentially disruptive event we will be ready to adjust accordingly.
On the flip side having a stretch plan approved with additional capital standing ready can allow a small company exploit an opportunity to “go big” if the market allows it and/or established players stumble in their execution.