The startup squeeze

Startups that don’t have revenues or a business model, like Seesmic or Twitter, are going to get squeezed big time in the next six months. Already we’ve seen how Seesmic responded to that coming squeeze yesterday. It got skinnier to make the squeeze easier to take. They will be joined over the next month by tons of other startups who will get skinny to prepare for 2009.

But what at the other end of the scale? What about small companies that have millions in revenues and are very successful? I’m hearing they are getting squeezed too. I can’t reveal the names yet, but I’ve been talking with companies who have millions in monthly revenues who can’t get credit or funding to expand and they are seeing customers disappearing from the marketplace at the same time, so they are getting squeezed. What do they do? They are turning away from capital markets and turning toward bigger companies who have the cash to buy them.

Expect to see a bunch of mergers and acquisitions over the next three months (you’ll see some in the next few weeks, again, I have several sources in big companies who’ve told me what they are seeing — there are bidding wars breaking out inside big companies to gobble up some of these smaller companies that will bring needed revenues to big companies’ bottom lines. Those revenues will be how the bigger companies pull their stocks out of the discount bins over the next few quarters).

CEOs: I’d love to hear about what kinds of pressures you’re under right now, even if you’re successful with millions in sales every month, and how you are responding to those pressures.

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45 thoughts on “The startup squeeze

  1. Robert, you’re certainly watching the various canaries in the coal mines out there. I’m trying to remain hopeful, while trying to figure out the best way to re-tool the message and maximize efforts to serve potential and existing clients in a rough market.

    I’m a huge fan of Open Innovation. I’m wondering if this might actually be a time period where crowdsourcing and innovation platforms could thrive, with the ranks of talented (recently laid off) freelancers swelling, and perhaps eager to pitch ideas and solutions to businesses that still need them. An inexpensive crowdsourcing platform might be just the medicine for some businesses and some freelancers. Thoughts?

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  2. Robert, you’re certainly watching the various canaries in the coal mines out there. I’m trying to remain hopeful, while trying to figure out the best way to re-tool the message and maximize efforts to serve potential and existing clients in a rough market.

    I’m a huge fan of Open Innovation. I’m wondering if this might actually be a time period where crowdsourcing and innovation platforms could thrive, with the ranks of talented (recently laid off) freelancers swelling, and perhaps eager to pitch ideas and solutions to businesses that still need them. An inexpensive crowdsourcing platform might be just the medicine for some businesses and some freelancers. Thoughts?

    Like

  3. There is no question this is true. I’ve begun talking to partners (or potential partners) about M&A as well as partnership. Raising capital to keep my bootstrapped start up going – even though I have a solid business model and plan – isn’t realistic.
    Given that I’ve shifted focus to generating revenue via partners with an eye on being acquired by one of those partners.

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  4. There is no question this is true. I’ve begun talking to partners (or potential partners) about M&A as well as partnership. Raising capital to keep my bootstrapped start up going – even though I have a solid business model and plan – isn’t realistic.
    Given that I’ve shifted focus to generating revenue via partners with an eye on being acquired by one of those partners.

    Like

  5. This recession is artificial and won’t last a quarter.

    Many people will make huge mistakes because of that.

    Just watch and learn.

    Like

  6. This recession is artificial and won’t last a quarter.

    Many people will make huge mistakes because of that.

    Just watch and learn.

    Like

  7. Artificial: if you’re right about that I’ll lick your boots. All indicators coming in right now are telling me you’re wrong, but that’s what makes the world go around, isn’t it?

    Like

  8. Artificial: if you’re right about that I’ll lick your boots. All indicators coming in right now are telling me you’re wrong, but that’s what makes the world go around, isn’t it?

    Like

  9. Well, I found something MORE annoying than tech bloggers blabbing about politics, them pining on economics.

    When bubbles pop, it’s not a bad thing, it’s a good thing, never mind that Silicon Valleyfakespeak, of “consolidation”.

    Time up pony up, and blame your advertisers.

    Like

  10. Well, I found something MORE annoying than tech bloggers blabbing about politics, them pining on economics.

    When bubbles pop, it’s not a bad thing, it’s a good thing, never mind that Silicon Valleyfakespeak, of “consolidation”.

    Time up pony up, and blame your advertisers.

    Like

  11. Jeff: well, if this really is deeper and longer than last time, there will be some very innovative things that come out of it. This blog started after the downturn started last time. Having time away from work to think certainly makes interesting things happen. Yes, entrepreneurs who have enough cash to last a few years are certainly thinking about what will happen to bring us out of a downturn.

    Like

  12. Jeff: well, if this really is deeper and longer than last time, there will be some very innovative things that come out of it. This blog started after the downturn started last time. Having time away from work to think certainly makes interesting things happen. Yes, entrepreneurs who have enough cash to last a few years are certainly thinking about what will happen to bring us out of a downturn.

    Like

  13. I’m the cofounder of NewsCred. We’re 100% bootstrapped, and have diversified our revenue stream in the past few weeks. We know that even with neglible burn rate, ad revenue won’t cut it during a recession. We’re also about to close an angel round to give us runway for 1.5 years. All of this has happened in the past few weeks.

    Times are tough, but I’m really excited to be building a startup during these times. Let’s do this!

    Like

  14. I’m the cofounder of NewsCred. We’re 100% bootstrapped, and have diversified our revenue stream in the past few weeks. We know that even with neglible burn rate, ad revenue won’t cut it during a recession. We’re also about to close an angel round to give us runway for 1.5 years. All of this has happened in the past few weeks.

    Times are tough, but I’m really excited to be building a startup during these times. Let’s do this!

    Like

  15. Robert

    You raise an excellent question and have blogged about it (http://www.tobeanentrepreneur.com/blog/raising-money-from-vc-q4-2008watch-out-2/) my friends on both sides of the equation say its bad already and going to get tougher.

    However, I for one don’t think us entrepreneurs should all panic, we should take a long herd look at our market and consider where the best place to “focus” our sales and marleting efforts in order to “sell” our way out of this position if we can…if you are twitter with no revenue streams yet then try and find some pronto or do as you say and find a big corporate partner/M&A or just be prudent and expand your runway to the next round.

    I also suggest tuning all messages to customers to “value” and “revenue generation/cost reduction” and get your existing customers to generate more revenues for you too.

    Jon Gillespie-Brown, Author, So you want to be an Entrepreneur? : http://www.tobeanentrepreneur.com/

    Like

  16. Robert

    You raise an excellent question and have blogged about it (http://www.tobeanentrepreneur.com/blog/raising-money-from-vc-q4-2008watch-out-2/) my friends on both sides of the equation say its bad already and going to get tougher.

    However, I for one don’t think us entrepreneurs should all panic, we should take a long herd look at our market and consider where the best place to “focus” our sales and marleting efforts in order to “sell” our way out of this position if we can…if you are twitter with no revenue streams yet then try and find some pronto or do as you say and find a big corporate partner/M&A or just be prudent and expand your runway to the next round.

    I also suggest tuning all messages to customers to “value” and “revenue generation/cost reduction” and get your existing customers to generate more revenues for you too.

    Jon Gillespie-Brown, Author, So you want to be an Entrepreneur? : http://www.tobeanentrepreneur.com/

    Like

  17. “…I’ve been talking with companies who have millions in monthly revenues who can’t get credit or funding to expand and they are seeing customers disappearing from the marketplace at the same time…”

    Okay, is it just me, or does anyone else see something wrong with that statement?

    Like

  18. “…I’ve been talking with companies who have millions in monthly revenues who can’t get credit or funding to expand and they are seeing customers disappearing from the marketplace at the same time…”

    Okay, is it just me, or does anyone else see something wrong with that statement?

    Like

  19. ken:agreed

    if youre losing customers why would somebody fund you. glad to see tech startups realize a blog story about your dumb web 2.0 app isnt the only economy you need to think about.

    some of the biggest companies started in the last downturn like netflix, hi5 and skype. deliver value and generate revenue….its not that hard guys

    Like

  20. ken:agreed

    if youre losing customers why would somebody fund you. glad to see tech startups realize a blog story about your dumb web 2.0 app isnt the only economy you need to think about.

    some of the biggest companies started in the last downturn like netflix, hi5 and skype. deliver value and generate revenue….its not that hard guys

    Like

  21. Robert,

    You’ve turned into the Dr. Doom. Not to suggest you’re off the mark in pointing out the new economic landscape but how about using offering some constructive things companies can do to ride out the storm. You’ve had enough experience and talked to enough people to offer solid perspective on how smart companies operate in tough times.

    Mark

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  22. Robert,

    You’ve turned into the Dr. Doom. Not to suggest you’re off the mark in pointing out the new economic landscape but how about using offering some constructive things companies can do to ride out the storm. You’ve had enough experience and talked to enough people to offer solid perspective on how smart companies operate in tough times.

    Mark

    Like

  23. Perhaps the companies you’ve indirectly referenced that have millions in monthly revenue don’t have any bottom line margin to go with it… thus no ability to borrow money any longer?

    Is that the situation Robert or are these profitable companies with strong balance sheets?

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  24. Perhaps the companies you’ve indirectly referenced that have millions in monthly revenue don’t have any bottom line margin to go with it… thus no ability to borrow money any longer?

    Is that the situation Robert or are these profitable companies with strong balance sheets?

    Like

  25. Vic: these are profitable companies with strong balance sheets. I’m even hearing IBM is having a tough time getting credit. This is a credit crunch. Do you now get it? Even people and businesses with GREAT credit are having trouble getting credit. That is why this is really troubling to me.

    Like

  26. Vic: these are profitable companies with strong balance sheets. I’m even hearing IBM is having a tough time getting credit. This is a credit crunch. Do you now get it? Even people and businesses with GREAT credit are having trouble getting credit. That is why this is really troubling to me.

    Like

  27. Quoting Robert: “Vic: these are profitable companies with strong balance sheets. I’m even hearing IBM is having a tough time getting credit. This is a credit crunch. Do you now get it? Even people and businesses with GREAT credit are having trouble getting credit. That is why this is really troubling to me.”

    Robert, you sound like an idiot stating the obvious.

    Like

  28. Quoting Robert: “Vic: these are profitable companies with strong balance sheets. I’m even hearing IBM is having a tough time getting credit. This is a credit crunch. Do you now get it? Even people and businesses with GREAT credit are having trouble getting credit. That is why this is really troubling to me.”

    Robert, you sound like an idiot stating the obvious.

    Like

  29. Robert, IBM is operating with something like 40% GM. I’d have a hard time believing they couldn’t securing credit. Has that been published anywhere or just something you’ve heard?

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  30. Robert, IBM is operating with something like 40% GM. I’d have a hard time believing they couldn’t securing credit. Has that been published anywhere or just something you’ve heard?

    Like

  31. Hi Robert,

    I’m the co-founder & CEO of mobile social network MocoSpace. Currently, I’m not seeing any signs of a slowdown in our mobile or web ad businesses. I suspect it’s coming, if for no other reason than media hype (I wonder how many gas masks were sold after 9/11, CIPRO for anthrax, breathing shields for SARS, etc.). Still, it’s clear that deleveraging is taking place on a global scale, as it should, and that there will be a significant slowdown. Right now, I’m responding by trying to hire the best and brightest. Of course, if MocoSpace’s business deteriorates, I’ll have to do the same thing I’ve done since founding the business, ie allocate our resources as best I can. Personally, I think the VC community and investors in general should, in this case, follow Hank Paulson’s lead and triage their portfolios such that they throw additional resources behind their best companies, so they can all take advantage of this environment to grow their teams and businesses.

    While I think it’s important for management to always be proactive, I don’t think it’s smart to overreact until the conditions justify it. Otherwise, one is just feeding a vicious circle. As they say, be greedy when others are fearful!

    Justin Siegel
    MocoSpace

    Like

  32. Hi Robert,

    I’m the co-founder & CEO of mobile social network MocoSpace. Currently, I’m not seeing any signs of a slowdown in our mobile or web ad businesses. I suspect it’s coming, if for no other reason than media hype (I wonder how many gas masks were sold after 9/11, CIPRO for anthrax, breathing shields for SARS, etc.). Still, it’s clear that deleveraging is taking place on a global scale, as it should, and that there will be a significant slowdown. Right now, I’m responding by trying to hire the best and brightest. Of course, if MocoSpace’s business deteriorates, I’ll have to do the same thing I’ve done since founding the business, ie allocate our resources as best I can. Personally, I think the VC community and investors in general should, in this case, follow Hank Paulson’s lead and triage their portfolios such that they throw additional resources behind their best companies, so they can all take advantage of this environment to grow their teams and businesses.

    While I think it’s important for management to always be proactive, I don’t think it’s smart to overreact until the conditions justify it. Otherwise, one is just feeding a vicious circle. As they say, be greedy when others are fearful!

    Justin Siegel
    MocoSpace

    Like

  33. Robert,

    I don’t think that there has ever been a better time for a boot strap startup. These tough times force a real business model that provides a sound plan for revenue and profits while growing. Credit may be an issue for many vendors and merchants, but if you can use the revenue from operations to fund you expansion, you should be in the catbird seat over the next 12-18 months.

    There is always an overreaction. There are late comers to every party. Credit markets are tight (understatement), but that will change. If you can put your business on a solid footing with a solid plan, you will essentially be pulling back the slingshot. When things normalize, you should be able to shoot.

    Keep up the great work.

    Bob L.

    Like

  34. Robert,

    I don’t think that there has ever been a better time for a boot strap startup. These tough times force a real business model that provides a sound plan for revenue and profits while growing. Credit may be an issue for many vendors and merchants, but if you can use the revenue from operations to fund you expansion, you should be in the catbird seat over the next 12-18 months.

    There is always an overreaction. There are late comers to every party. Credit markets are tight (understatement), but that will change. If you can put your business on a solid footing with a solid plan, you will essentially be pulling back the slingshot. When things normalize, you should be able to shoot.

    Keep up the great work.

    Bob L.

    Like

  35. I think Bob L makes some great points. One of the major reasons the tech boom failed was because everything was overvalued. Dot com’s were flush with cash and spending way too quickly and haphazardly.

    Growth based on value and profits. Sounds like lunacy, doesn’t it?

    Carey

    Find Startup Funding

    Like

  36. I think Bob L makes some great points. One of the major reasons the tech boom failed was because everything was overvalued. Dot com’s were flush with cash and spending way too quickly and haphazardly.

    Growth based on value and profits. Sounds like lunacy, doesn’t it?

    Carey

    Find Startup Funding

    Like

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