(Editor’s note: Steve Fredrick and Don Rainey are general partners at Grotech Ventures. They submitted this story to VentureBeat.)
Although the economic downturn was historic, we were surprised to see how many savvy investors and startups simply shut down during this time period. While conserving cash was critical to survival for a lot of companies, whenever possible, that should have been done within the framework of doing more with less, rather than simply doing little or nothing at all.
It’s not part of our inherent DNA as entrepreneurs to eschew risk, and we must once again celebrate and reward the risk-takers among us as we head into 2011, because it’s these groups of individuals that will help pull us out of the morass of the past two years.
We’re already seeing signs that the startup community is getting back to its innovative roots, and we fully expect entrepreneurial endeavors to come back into style over the next year. Companies and consumers are beginning to spend again, the exit markets are rebounding, appetites for risk are resuming and natural selection has taken place – thinning out weaker organizations, as the stronger have survived.
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Also, crises breed opportunities, and many seed-stage companies got off the ground in 2010 thanks to unemployed entrepreneurs that cobbled together initial plans and funding. In 2011, these young organizations will aim to take the next steps, which in many cases will include a Series A round of venture capital.
So what risks should investors and entrepreneurs be prepared to take in this climate? Here are our thoughts on seven risks that may well result in success:
Start spending again. Do it wisely and maximize every dollar, but don’t sit on your hands trying to conserve cash forever. Hire critical employees, invest in new channels, and reward innovation or risk being left behind. Just as real estate experts talk about kitchens and bathrooms being high-value, dollar-for-dollar renovation projects, there are similar examples in entrepreneurship, such as sales, marketing, research and development.
Hire new assets. Hiring is a great way to strategically invest in growth. The employment market is clearly a buyers’ market right now. There are a lot of talented people among the unemployed as well as an increasing number of semi-retired workers. These trends highlight creative ways to bring high-quality, experienced people on board for reasonable (in some cases even part-time) salaries.
Change your core business. If your current market is changing rapidly (and whose isn’t), now is the time to flesh out and fully consider Plan B. Don’t be afraid to make a wholesale shift in your business to catch the right wave. Many of the best ideas came from a discovery process that led an entrepreneur from Plan A to Plan B.
You may lose some good employees and customers along the way, but you need to think about whether your initial plan is still going to net you and your investors the big rewards you thought it would three years ago. If it won’t, then look for ways to maximize your IP and your expertise to forge a new path.
Investigate new revenue models. Is freemium working for you? Have you considered free? How about a subscription model? What will it take to make your business a success? Don’t be afraid to consider a radical change to the revenue model.
Sell the company. Many founders are reluctant to sell too early, but they can easily miss the window of opportunity. Rather than looking at selling as a necessary evil, and a viable option only when you can no longer make it on your own, consider what company or companies might make a great heavy-hitter once combined with your assets.
Forge impactful partnerships. Partnerships have long been a great way to extend one’s reach. In addition to traditional agreements that might broaden a company’s geographic reach or technical capabilities, investors and entrepreneurs should look for ways to merge portfolio companies to lower overhead, expand service offerings and accelerate product development and R&D.
Enter new geographic markets. The Internet and other modern technologies are great at breaking down barriers, and many economists are forecasting higher growth for China, India and Brazil than for traditional markets like the U.S. and Western Europe. It might not be as hard as you think to start selling into these burgeoning markets.