The Road Ahead
Date: Monday , November 03, 2008
We are going through an unprecedented phase in the global economy – rules are changing everyday as global financial markets are in a state of complete chaos and are swinging up and down. Venture capital and debt financing have become much harder. Around here in Silicon Valley, Sequoia capital is advising its portfolio companies to focus on preserving cash, rather than aggressively investing for growth or innovation. This is quite a remarkable shift in sentiment that has taken place within a period of a few months in 2008.
Entrepreneurs in general, and Indian entrepreneurs in particular, are trying to catch up and make sense of this new world, how they can protect themselves in this new economy of ‘frugality’, and how they can continue to start and grow startups despite all these odds. These are indeed trying times for entrepreneurship, but as always times like these also present unprecedented opportunities for those who are well prepared to seek them.
The Indian entrepreneurs have earned a great name for themselves over the last decade - continuing their innovations through the boom times of 1990’s and then being resilient through the dot com bust in 2001. However, this time around, in 2008, the Indian entrepreneurs are again being put to serious test - on how they can rise individually and collectively to continue the pursuit of entrepreneurial dreams. For many, things can be depressing, as news of financial meltdown, de-leveraging, and risk avoidance seem to swamp the news channels and the blog world. But, for the brave few, the true entrepreneurs, this is a test of their grit and conviction in themselves and in their pursuits. I, for one, see a silver lining in the clouds ahead on the horizon. Our job as entrepreneurs is to rise above the cloud and identify what specifically will matter in the business world ahead. What kind of products will sell? What markets will now matter more than others? What kind of customers are more likely to buy? How do I adapt my business plan or organization so that it is better aligned to the world ahead? I urge all entrepreneurs to introspect and reinvent themselves at this time.
This is not the time when businesses are managed the usual way. This is an opportunity for the brave to seize the markets. As an optimist, I believe that “When the going gets tough, the tough gets going”. This is a test for the entrepreneurial energy of the entrepreneurs around the world. As we have shown in the past, let us keep the entrepreneurial spirit alive and challenge the assumptions, and find our place in the new world ahead. I am confident; we will indeed rise up again!
Here are some things, which I consider business essentials for the road ahead:
Get past the ‘hype cycle’: If it has already not become obvious to you, then let me restate it again - Let us focus on business fundamentals, not the promise of ‘hype cycles’. Web 2.0 is a great buzzword, but the tough question an entrepreneur now must ask and answer is how he or she is going to drive profitable growth? How do you make your business model work? Over the last few years as the real estate sector has boomed, mortgages and loans have been doled out without any due diligence, oil prices have soared, commodity prices have sharply risen, , and many investors and entrepreneurs got carried away by the lure of the momentum. Now we need to learn from the recent market collapse; we need to learn not to get carried away by these market cycles. Instead, strong entrepreneurs will focus on building fundamental value, one that is driven by customer needs and innovation, and is not necessarily chasing the next hype cycle. I see a strong buzz emerging in credit markets as credit and regulatory oversight gets retooled. I also see a continued attention towards alternative energy solutions, novel consumer health applications. Global outsourcing will also continue to see a strong momentum in this downturned economy. Web 3.0, which personalizes the crowded Web 2.0, will be a hot area, and so would areas like cloud computing, software as a service, virtualization, and Green IT. Entrepreneurs must take advantage of these macro trends, but it is equally important not to chase these hype cycles and sacrifice business model fundamentals.
Get creative for survival: Now is the time to get creative on how to survive the downturn. How should one manage costs and expenses, while revenues may be slower to come and cash flows might be more volatile? It may also become harder in many cases to raise venture capital, so how does one turn to angels, debt sources, and other investors to manage the cash requirements for growing startups. Creativity has to span across the organizations, from R&D to sales to marketing.
Focus harder on to your core competencies: Now is a good time to look inwards and determine one’s own core competencies. What are you best at, and can you focus all your resources on making that happen? During boom times most businesses and entrepreneurs get spread too thin across areas like product lines, sales geographies, and technology stacks. Now is a good time to think about sharpening the focus and getting out of non-core activities.
Look for market voids: During the last downturn, when the dot com bubble burst, a number of great dot com ideas got prematurely abandoned along with the rest of the clean up. Entrepreneurs who took advantage of these apparent market voids found themselves well situated when the economy turned around. For example, the successful online shoe superstore Zappos.com stayed on course, while many online retailers shut operations. Similarly, online digital photo sites did very well despite the downturn, given the fact that there was a fundamental shift from regular cameras to digital cameras. In every economic downturn, there will be market voids created, as many good companies and ideas evaporate along with the bad ones. As an entrepreneur one should be on the look out for such voids and opportunities.
Ride an existing sales channel: Downturn of economy often means that companies become more selective in how they buy software, technology, or services. They are more likely to consolidate their purchases to a select few vendors and providers. Consumers also follow a similar path, they are more likely to spend with known discount retailers and service providers than during the boom times, when they are more likely to experiment with new concepts and brands. As a startup entrepreneur, it becomes an imperative to create channel partners who can help you sell your technology or service. To summarize, we are now in unchartered territories as the world still struggles to figure out the implications of this financial downturn. Strong entrepreneurs will find the business essentials discussed in this article helpful to pave the road ahead in these unchartered territories.
The author is the Chairman of SiliconIndia.com and MetricStream. An internet pioneer, he was the co-founder and President of WhoWhere? Inc., a Internet directory services company acquired by Lycos in 1998 as well as eGain, an online customer service company. Sinha can be reached at email@example.com