For years, the playbook for startups in Silicon Valley was crystal clear (if not particularly economically sound). Raise as much as you can, and never turn money down. Get users, more users, and then more. Figure out the business model part later.
Ultimately, get that billion-plus valuation — and you’ve made it.
Yet by the outset of 2020, the sheen was already off the overvalued-company-with-a-scary-balance-sheet (see WeWork, Casper). I have long been advocating for a new breed of startup — “stallions” — companies that may not be as sexy as a booming consumer app but that demonstrate admirable fiscal prudence.
Now, as the effects of the COVID-19 crisis dominate the economic environment and threaten to do so for the foreseeable future, the need for stallions is that much more apparent.
That means all the rules you think you know about building a tech startup have been completely flipped. Which is ultimately a good thing, for those with the courage to invest during rough times. Here’s how:
Delay raising money for as long as you can
There’s a growing awareness that it’s best to be a lean startup, but very few startups are actually lean. The culture of massive VC backing can be hard to resist.
Back in 2013, Egnyte was exhibiting steady consistent growth. At that time, our investors pushed us to raise more money. We said no. People thought we were crazy. The truth was, we weren’t ready. For one thing, we still hadn’t fully landed on our business model.
If you’re not surviving on your own, the market may be telling you something. More cash might help, but it may just make things messier.
Don’t figure out your business model on someone else’s dime
Again, a few years ago this may have sounded heretical. People might have said, ‘That’s what funding is for — to take risks, and pivot and then pivot!’ Not anymore. Right now, startups need to begin their operations with a capital-sound mindset, looking to get cash flow positive as soon as possible. It’s the best way to ensure that your startup has identified a real need and is on a path to sustainability.
Expand when you’ve already maxed out your initial market
Too many times we’ve seen would-be unicorns launch into new geographies — or worse, new products or markets — before they’ve mastered their core competencies. That leads to distractions and slow responses and mistakes.
Raise money from a position of strength — when it’s time to hit the accelerator
When Egnyte eventually did take on more capital, we’d really nailed down our model, and the company was set to take off. An infusion of cash helped us expand rapidly, taking advantage of immediate growth opportunities, not guesses. That’s exactly when you should take in cash.
Hire the best talent wherever you can find it
Creating a culture of inclusion is about more than just decency and common sense — it is a major boon for the bottom line. The data is overwhelming that companies with a more diverse workforce outperform their competitors. One often overlooked consideration is geographic diversity. Hiring exclusively from Silicon Valley or established tech hubs like Austin or New York may inadvertently close you off to the best talent. One of the best things we did for Egnyte was to bring in key remote hires, and open offices in Poland, Raleigh, and Spokane. Widening the aperture helped us bring in people with a range of backgrounds and experiences, and that has contributed immensely to our success.
In fact, a silver lining of quarantine has been seeing how productive our remote teams really are. It’s an encouraging sign that remote hiring can open up a whole new world for today’s startups.
Think hard about acquisitions
Acquisitions are challenging even for the strongest, most financially sound mega corporations or conglomerates. There are compatibility issues, looming culture problems, and more distractions. But we’ve seen many unicorns buy companies just because they can. In this climate, if an acquisition doesn’t add exponentially to your own business or take competition out of your way, it’s likely to trip you up and bring new headaches to your life.
Put an IPO out of your mind
It’s going to be a while, even for the surest of things in startupland. Stick with building your company; the rest will follow.
I realize some of this is hard to hear, and even harder to grasp. Yet eventually we all grow up and realize unicorns aren’t real. But stallions are. They are strong muscular athletic beasts. They put blinders on and run.
They can go faster and further than other animals, with a purpose.
Vineet Jain is CEO of Egnyte.
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