Business Reality for High Tech Startups...And You?

Have you seen what the Silicon Valley venture capital firms are saying to the  startup firms they've invested in?

​While it may be tempting to smile and nod approvingly at this dose of business reality, there's a ripple effect to be aware of.

As reported in the May 31 edition of the Wall Street Journal*, "Their advice includes cutting costs, preserving cash, and jettisoning hopes that hedge funds or other investors will swoop in with big checks."  

• "The cost of capital has changed materially, and if you think things are like they were, then you are headed off a cliff like Thelma and Louise," wrote Bill Gurley, a partner at Benchmark Capital. 

• Sequoia Capital "advised companies to cut expenses quickly and preserve cash. Companies need to control spending, focus on quality and lower risk."
  
  
• "The boom times of the last decade are 'unambiguously over,'"asserted Lightspeed Venture Partners. 
  
  
•  Y Combinator "is urging founders to cut staff, reduce ad spending and raise prices."
  
  

Quite a wake up call for some of these firms. But one that could have a major ripple effect for your business.

Why? 

Because many of these firms are likely ones that you have begun using, whether to source product (online wholesalers), host your e-commerce operation, provide delivery services, provide your payment processing, or POS services, or payroll services, or do your bookkeeping, etcetera.

• What actions will they likely take to please their investors?
  
  
• What might their scramble mode to focus on profitability look like?
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Meanwhile, controlling expenses, focusing on profitability, and most importantly, managing inventory turns are all proven techniques very familiar to today's retail owners. Add to that a sharp focus on your most profitable customer, and you are well-prepared to ride out theses economic times. 

Today's announcement about venture capital money's warnings to tech startups may seem a distant issue. But we see it as a major "heads up." Better to be advised than blind-sided!

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* "Startups Get Tips on How to Stay Afloat," Meghan Borrowsky and Vital Monga, The Wall Street Journal, May 31, 2022.