The Financial Crisis: A Survival Guide for Startups

Entrepreneurs often focus so much on running their companies that they don’t have time to worry about events in the outside world. Normally, this is how it should be, but the credit crisis slamming Wall Street right now is an exception, and it has deep implications for any startup.

The current mayhem actually began back in 2001. In an attempt to mitigate the economic impact of the dotcom collapse and the Sept. 11 terrorist attacks, the Federal Reserve began a series of interest-rate cuts, slashing the cost to borrow money to 1.75 percent from 6.5 percent. This was great at first: Entrepreneurs could borrow cheaply to build new businesses; consumers could borrow cheaply to spend money on our products.

There was an unexpected result, too. People began using the cheap rates to buy houses. Lots of houses. Investment banks then repackaged the new mortgage debt into all kinds of new securities that supposedly separated risky loans from safe loans. The result was cataclysmic: As housing prices plummeted, suddenly financial institutions had trillions of dollars of asset-backed securities that couldn’t be valued at all. Unable to borrow money, some of these banks are now failing, making credit hard to come by for everyone, including entrepreneurs.

If you are lucky enough to have customers, your customers are going to be less inclined to spend now. If, like most startups, you have no customers, you’re in worse shape: The angels and VCs competing to give you money last year will be far less willing to invest now.

So, what’s a founder to do? Read More about The Financial Crisis: A Survival Guide for Startups

Dr. Horrible’s Opening Day Ups and Downs

Despite tentative assurances at last Thursday’s Q&A that the web hosts streaming Dr. Horrible’s Sing-Along Blog would be up to the challenge today, has been crashing all morning, and server traffic has been slow at best. Per the Twitter of star Felicia Day: “Wow, Horrible is breaking all the internet. Their site, my site, their fan site, whedonesque…”

If you want to keep posted on the site’s ups and downs, is a good place to start, but right now the only certain way to watch the musical spectacular is via a $3.99 iTunes season pass. Of course, this could change at any moment, so feel free to comment with updates if you catch them before we do. The one thing we know for sure at this point — any concerns we might have had about a web series of this nature building an audience seem pretty moot.

Recession Prep: Scott Rafer’s Survival Tips from 2000, or the ‘Summer of Angst’

Last October, Found|READ lunched with serial entrepreneur and Lookery cofounder Scott Rafer, who gloomily predicted the technology industry was “no more than five months away from the next bust.”

Pessimistic, even for the opinionated Rafer, but then he knows a thing or two about successes (MyBlogLog), struggles (Feedster), and recessions. Rafer then generously loaded our plate with great tips for less experienced founders who might need help preparing for the market’s “hard knocks.”

Seven months on, times are tougher, but plenty of companies are still getting funded. So this week we checked in with Rafer again. First words out of his mouth: “There has only been a flight to quality. Frankly I’m struggling to understand it.”
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Cisco Out To Crush Netgear?

Looks like Cisco Systems (CSCO) is dead serious about turning the screws on the competitors of its Linksys line of products. Today, Netgear (NTGR) announced its first-quarter 2008 financial results and they were, to put it mildly, terrible. Sure, revenues were up 14 percent on a year-over-year basis, but operating income, net income and earnings per share took a big dip. Netgear stock is tanking this morning — down 10 percent as Wall Street cuts estimates and turns sour on the company.

Why? Because Cisco is waging a price war on the company and its brethren. In a press release, Netgear CEO Patrick Lo said,”We also observed a slowdown in the U.S. retail market, prompting our primary competitor to lower prices below ours for certain consumer products.” Who might be that primary competitor? Mark Sue of RBC Capital Markets points to Cisco.

Lo seems confident that Netgear can weather the attack and plans to introduce a whole new slew of products “that we believe will strengthen us further in the SMB market.” The company introduced 11 new products in the first quarter and aims to introduce 12 more in the second. For Cisco, SMB has been a good area of growth, and it wants to rev up the revenues, never mind the low margins. Of course, all this will come to naught if the company kills the Linksys brand and shoots itself in the foot, as our poll suggests.

How to Build Good Credit for Your Business

Today we offer the latest edition in Larry Chiang’s long-running series on “Things They Don’t Teach You At Stanford Business School,” which he is turning into a book. (A list of Larry’s earlier posts is below.) This month’s installment is about how to build good credit for your business in a recession.

April is financial literacy month and it’s meant for kids — but we entrepreneurs can learn something too. Surprise! None of these tips are taught in business school. Credit isn’t a class taught inside such Ivory Towers. (I think maybe because we’re supposed to be too good to worry about our FICO scores?) But then, again, credit rules are archaic, so its understandable that Stanford GSB doesn’t school its kin in such minutiae. But I plan to, because especially right now — as we teeter into a recession — a lot of founders are going to learn just how powerful good credit can be.

My 9 Tips for How to Build Credit for Your Business…

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5 Reasons Why the Recession is Good for You

Recessions are good for startups because they foster:
Frugality, Fine-tuning, ”Family’ Values, Forerunner-status, & Fire-proofing.

We’ve been writing a lot lately about how you can steel your startup for the recession. (See links below.) Now Melissa Chang, writing on the new Industry Standard blog, offers her rationale for why a recession is a good time to launch a new company. She has one caveat: your company is small, web-based, and doesn’t a lot of capital. (This is because VCs are ninnies.)

Melissa has five main points, all true, if not earth-shattering… Read More about 5 Reasons Why the Recession is Good for You

Recession Fears Don’t Touch Apple

The Baltimore Sun is reporting today that Apple sales will stay strong regardless of a declining and troubled economy. I wonder if a bonus check from the government has anything to do with this. Changewave Research conducted a survey of consumers and corporations that plan on buying a computer in the next 90 days. According to the article, Changewave Research conducts these surveys with its own group of people: the same 15,000 for each survey to allow for historical comparisons.

Buying Consumer

Apple is staying mostly steady, not going up; but that is much better than HP and Dell who are declining in both the consumer and corporate markets.

HP Consumer

In the OS arena, 53% of those corporate respondents that use Leopard said they were “very satisified.” Anybody want to guess how many corporate Vista users were “very satisfied?” Eight percent.

As I mentioned Changewave uses the same 15,000 members for all the surveys. In November, 29% of respondents said that they planned on buying a Mac in the next 90 days. But the February survey of those same people said that only 16% did purchase a Mac. This was not evident in PC sales, where there was only a one percent difference between those who said they would, and those who actually did, buy a PC. I think that there is the discrepancy because Macs cost so much, and people actually have to save up for one. You can buy a cheap PC that is obviously not as good as a Mac, but it is still a computer. And when you’ve only got a few hundred bucks, a new PC could be tempting to those without a discerning palette.

Any other thoughts on why Apple is losing those that plan to buy a Mac?

Preparing for the Recession: ‘Mahalo’ for Tips on How to Save $$

Founders can never get enough advice on how to save money. Last week Weblogs founder Jason Calacanis wrote a handy post about how he’s done this over at Mahalo, where he is currently CEO. Jason took some TechCrunch flak for one tip in particular (“fire non-workaholics!”), but his post still makes a nice addition to our new series on How to Prepare for the Recession. (See also: Preparing for the Recession: How to Market Your Way Through It, and How to Turn Your Revenues Up As Economy Goes Down.

I should’ve put Jason’s post, How to save money running a startup (17 really good tips), in Found|LINKS over the weekend — but you’re more likely to read it on a Monday anyway! A few highlights follow. Read the whole thing at Jason’s blog.

I’ve got a bunch of tips on how to [save money] for business. Among them:

1. Buy Macintosh computers, save money on an IT department
2. Buy second monitors for everyone, they will save at least 30 minutes a day, which is 100 hours a year… which is at least $2,000 a year….
3. Buy everyone lunch four days a week and establish a no-meetings policy.
4. Buy cheap tables and expensive chairs…
5. Don’t buy a phone system. No one will use it…
6. Rent out your extra space…
7. Outsource accounting and HR…
8. Don’t [use] Microsoft Office. [Do] use Google Docs.

and for tip #11, the one that got Jason into trouble,
and which he’s tried to amend on his blog (unsuccessfully) … Read More about Preparing for the Recession: ‘Mahalo’ for Tips on How to Save $$

Preparing for the Recession: How to Market Your Way Through It

Think you can “market your way through [the] recession”? Harvard‘s Prof. John Quelch thinks you can.

We have the economy on our mind at Found|READ. We imagine our readers do, too, so we’re beginning a new series of posts today on how you can best prepare your startup for the downturn — even come out of it in a stronger competitive position.

Our first piece comes to you from Harvard’s marketing guru. In his March 3rd essay, Marketing Your Way Through a Recession, Prof. Quelch argues that you can use messaging to “improve market share and return on investment” during hard times.

Prof. Quelch offers eight ways to do this. We highlight two — the ones we think you can implement most easily:

1) DO NOT cut your marketing budget:
“It is well documented that brands that increase advertising during a recession, when competitors are cutting back, can improve market share and return on investment at lower cost than during good economic times. Uncertain consumers need the reassurance of known brands…”

2) Hand-holding goes a long way in hard times, and it’s free!:
“When economic hard times loom, we tend to retreat to our village … as uncertainty prompts us to stay at home but also stay connected with family and friends. [Therefore] CEOs must spend more time with customers and employees.”

For more…. Read More about Preparing for the Recession: How to Market Your Way Through It

How to Prepare Your Startup for the Downturn

McKinsey blasted us again yesterday, this time with its foreboding “Special Collection: Coping with a downturn.” Every day the signs of our coming recession grow clearer, so it’s time to start rationing and stockpiling — or diversifying, depending on your business type. Only you can make the call about what strategy is best for your startup, but one thing is sure: find a way to build flexibility into your b-model.
McKinsey offers specific guidance on how to do this in Preparing for the next downturn. Having studied 1,300 companies, the article details the winning strategies used to survive the last economic lull by Starbucks, Verizon and Talbots, and highights others in this handy chart. Read More about How to Prepare Your Startup for the Downturn