These are all reasonable explanations, yet they ignore the most obvious one: outlandish valuations. Is a startup with $5M in revenue worth a billion?

No…and to think otherwise is outright delusional insanity. However, I do not fully understand the absurd valuation math of Silicon Valley. It seems that if an investor believes a valuation is true, then it is.

Keep in mind, this is the place that minted valuation absurdities like Theranos, Webvan, and (here is an oldie but a goodie) Cue Cat. Yes, that Cue Cat. In fairness, for every Cue Cat that Silicon Valley funded, there are dozens of genuinely innovative companies that contribute to the forward progress of humanity.

Whether it is absurd valuations or the lack of baby formula, a reset for startups seems inevitable. So, what kind of evasive maneuvers can startups take to weather the coming dark times?

Vision

To paraphrase the great philosopher Freewheelin’ Franklin: vision will get you through times of no customers better than customers will get you through times of no vision.

Vision is a description of the future. A well-defined, well-articulated bright future inspires hope. Hope that the company will successfully navigate through the darkness. Hope that rewards are attainable. Hope that all the struggle, toil, and stress will be worth it and have meaning.

To paraphrase Jyn Erso, startups are built on hope.

To promote a brighter future, startup leaders must emphatically promote the company’s vision. To do that, answer four questions:

1. Why does the company exist?
2. What problem(s) does the company solve?
3. What are the values of the company and its people?
4. How can people find meaning and relate to those values?
5. Where is the company going?

Do not make your vision about money — ever. Money is a weak motivator. Moreover, nobody cares about making money for the investors or founders. Vision must be about something people can genuinely care about. Money must be the result of staying true to the company’s vision, values, and mission.

Vision gives people purpose. Without purpose, employees invariably ask themselves “why am I here?” It does not matter how smart you are, or how many big shots you know, or how much money you have in the bank, without purpose people have no reason to stick with the company.

Vision will get you through the downturn. However, words alone will not solve everything. There are some other ways to stay on target.

Automate

One of the many ways we sap meaning from people is to put them into roles with repetitive, boring work. Automate repetitive tasks and promote the people into more meaningful work.

The mere act of shifting people’s focus from performing a repetitive task to automating that task, provides a more satisfying job. Moreover, one a task is automated, your products and services become more reliable, scalable, and valuable.

Put that Coffee Down

Maybe you need Alec Baldwin to yell this at you: Always Be Closing. You need to sell, sell, and sell some more. To do this, you must arm your sales team with the resources they need to effortlessly demonstrate your company’s value.

For example, all salespersons must be able to expertly demo your products at a moment’s notice. If you sell services, you must have a library of sample output (reports, content, etc.) that demonstrate your capabilities and expertise. Demos and samples are effective ways to communicate your company’s competitive advantages.

In my experience, the only way out of a hole, is to sell your way out. There are only so many cuts you can make to staff or spending before the company becomes ruined. Investing in sales and marketing is the ticket out of the dark times.

However, before you charge ahead, be clear with your sales and marketing teams that results are the only metric that truly matters. Effort is expected, but results are what they are measured on.

Product Improvements

You know the next valuation is going to be low(er). So why not actually improve your app and have something more valuable? Downturns are an excellent time to clean up all the crap in your app that is holding you back. Quit dickering around with every dumb customer feature request and go back and fix the big stuff.

Emerge from the darkness with products and services that are more valuable, and therefore can command reasonable valuations.

Repackage

When times are tight, buyers go bargain hunting. They expect every app, service agreement, and subscription to go farther, offer more, and solve more problems. If you are a special little unicorn app that only works in a narrowly defined set of requirements, then it is time to repackage yourself and broaden your appeal.

Build packages that solve entire business problems all in one. Moreover, reprice everything into monthly subscriptions, usage-based billing, or extended terms to make payment easier on customers.

Partner Up

Rather than be a lone sinking ship, partner up with other sinking ships. This also can help with repackaging. If you can bring partners to the table that fill gaps in your offerings, then you have more to offer.

However, before you sign up a bunch of partners, make sure you understand how each partner makes money. Each partner must be able to see how they can benefit, otherwise it is not a real partership.

However, be honest with your scale. A $5M startup is not going to have the market reach of a titan like Cisco or Microsoft. If you partner with a bigger player, then you need to accept the inherent unequalness of the partnership.

Be Brutally Honest

Unfortunately, tough times mean doing more with less people, resources, and time. Layoffs, cutbacks, and delays always feel bad.

Do not sugar coat the unwelcome news. This only makes you look foolish and desperate. Also do not make it about you. Be honest about the changes. Show remorse but show resolve as well.

The intent is to show you care about people, but you are committed to staying the course and seeing the bad times through. This is why vision is so desperately important in bad times. Layoffs and lost deals are the ideal time to double down on the company vision, values, and mission. It pulls everybody back together and recenters them on why the company exists.

Conclusion

Do not give up. Downturns are inevitable. Yet, nothing bad lasts forever. Startups can survive (even thrive) in bad times. Moreover, as the Wired article points out, troubled times can mint stronger companies. The key to coming out of this storm is keeping your eyes on the prize.

To quote one of the greatest philosophers I knew: perseverance furthers.

The post Surviving the Startup Crash appeared first on Zenaciti.

“At least I did not kill my startup like that!” one founder exclaimed.

This set off a discussion about all the ways startups collapse. Stories of failed startups are uncommon. However, for every sensational fail like Theranos, there are many more that simply fade into irrelevance. After a lengthy discussion, we came up with ten things that can kill a startup, as well how leaders can commute a startup death sentence.

1. No Sales

You can have the greatest idea in the world, but if nobody pays money for it, you might as well throw it away. Startups that cannot sell are startups that cannot survive.

Solution: Always be closing. Sales must be the top priority for everybody, especially the CEO.

2. Angry Customers

While customers of startups often know they are taking a risk, that tolerance has limits. Unhappy customers spread bad news quickly. When every sale is important, angering customers with poor support, unfulfilled promises, or unfixed bugs can be devastating.

Solution: Dedicate a person (or team) to customer success. Have a mechanism to capture and respond to customer feedback.

3. Irresponsible Cash Burn

Most startups burn cash. Not all cash burning is good. Burning cash to hire (the right) people or procure necessary supplies is good. Burning cash on ludicrous parties, lavish offices, or expensive vendors not only shows a lack of leadership, but it also shows a lack of control.

Solution: Aggressively scrutinize spending. Implement spending controls to prevent any executive (including the CEO) from spending more than a set amount.

4. Lack of Product (Management)

This may seem obvious, but plenty of startups get funded based on innovative ideas, and then faceplant when they confront the reality of product development. Even releasing flawed products, that are fixed later, is better than releasing nothing.

Solution: Hire a product manager, set goals, and meet them. Do not allow perfection to become the enemy of good (or even mediocre) product.

5. Internal Strife

It is profoundly difficult to build a product, bring it to market, and convince customers to buy it. It is impossible to do those things if the people in the company are going in different directions. Unifying everybody around a common set of goals and values is mandatory for success. Equally important is getting rid of the people will not get on board.

Solutions: Provide leadership coaching for executives. Require unity to a strategic plan a condition for executives to remain employed.

6. Financial Shenanigans

Most founders find budgets, sales forecasts, and unit economics boring because…well they are boring. However, they are also supremely important to running a company effectively. When leaders begin messing around with the finances, to either hide failure or reassure jumpy investors, there is nowhere to go but down.

Solution: Empower finance team to report independently to the board. Perform annual, independent financial audit.

7. Outmaneuvered

When an innovative product emerges, competition is inevitable. Startups that become stuck on early success and fail to keep pace with their competitors can get outmaneuvered and rendered irrelevant. Moreover, if a large competitor (like Microsoft) enters the market, they can outspend smaller players resulting in the same result.

Solution: Pay attention to the competition and meet those product development goals.

8. Failing to Plan

While it may be a cliché, failing to plan is a plan to fail is an accurate statement. It is easy to become distracted with everyday struggles and problems. Moreover, it is equally easy to dismiss planning as overly formal, especially in fast-moving DevOps companies that promote a “fail fast” mentality. The purpose of a business plan goes beyond formality. Plans set boundaries and keep the company focused. Moreover, they prevent any one person (or team) from redirecting the company into some other product or effort.

Solution: Document an annual strategic plan. Get buy-in from the team. Enforce it. Stick to it.

9. Arrogance

When money floods in, some leaders transform into lunatics. This can lead to spectacular flameouts, such as WeWork. When arrogant leaders fancy themselves as prophets, the company is on a one-way trip to an early grave.

Solution: Do not enable craziness. A healthy dose of skepticism and reason can quickly defuse a lunatic.

10. Lost Vision

Among all the things we discussed, the most insidious killer of all startups is one of the most difficult to detect: a loss of vision. Vision is what a startup hopes to achieve and become. It is the intangible why of a company that Simon Sinek references. Large companies with an established customer-base and entrenched internal power structure can stagger along for decades with no vision. Startups cannot. The company’s momentum, enthusiasm, and focus all depend on the vision. Many startups lose vision when the founders exit, or the products fail to gain traction in the market. Immature leaders will dismiss talk of vision and core values as “touchy feely” nonsense.

It is vitally important for startup leaders to cultivate, communicate, and command a clear vision, mission, and core values. Many of the other items on this list can trace their origin back to the loss of vision within the company.

Solution: Document the company’s vision, mission, and core values. Refer to them regularly.

Conclusion

Startups are fragile things. Unlike big companies, which can weather mistakes, startups have less of a safety net. The primary advice this group of founders had was simple: stay on target. Startups routinely get lost and distracted along the path to success. Whether you lead a startup or work at one, stick to a plan.

Moreover, money is seldom why a startup fails. Rather, its leadership (or the lack thereof) that causes the chain of events that lead to lost money, lost deals, and lost opportunities.

The post How to Kill a Startup appeared first on Zenaciti.