Start-ups in a Down Market? Absolutely...
By Clayton on Sep 30, 2008
Many of you know that I came to Oracle through the acquisition of OctetString. You may not realize that I co-founded OctetString in early 2001, which was during the last downturn. In fact, we were negotiating our first software sale when the 9/11 terrorist attacks occurred.
So I read with great interest Jason Calacanis's email (and blog post) discussing how startups can better survive an economic downturn. Given that he too started his last company (WebLogs, acquired by AOL--think Engadget) during the last downturn, he's got very solid advice. I don't agree with a few specific items (never had a reason to test dedication with Sunday morning meetings), but overall a great read.
I thought I'd share a bit of advice and a few tales from that same period of time, but in the enterprise software space.
When we first started OctetString and created what is now the Oracle Virtual Directory, we had a number of pre-baked customers that were lined up to buy our software. Unfortunately, most of these were telco customers and by mid-2001 our phone calls weren't simply finding people who had been pink-slipped, but entire divisions that had been abandoned and certainly weren't going to be buying software from us anytime soon.
What kept things going was pretty simple:
1. Keep costs low -- especially recurring
While all expenses should be reviewed, you're going to want to pay particular attention to things that are recurring, including people, rent, etc...
When we needed hardware, I just made a trip to the local liquidator. HP-UX server: $800. Solaris box: $995. A bit like going to a junk yard and not as glamorous as handing over a check to your local rep, but it works.
Until almost 2003 we didn't even have an office, and even then I just used a Regus facility in order to share some common services with other companies (and not worry about anything related to maintaining the office itself). Not to mention the lease was relatively short-term (and I loved their coffee machine).
2. Retain an insanely dedicated core group
Jason makes this point and mentions seeing who shows up for a Sunday morning meeting or such to see who's dedicated. I think you'll know who the right people are even without having to test them.
These people won't care about fancy offices or silly perks. My first sales guy closed a critical deal with Pfizer in the United economy class line at O'Hare Airport on the way to Germany. Another critical deal with Coca-cola was closed in a phone booth at University of Illinois while a kid was breaking up with his girlfriend in the next booth (it's not you, it's me). Not having an office or business class for international trips didn't seem to stand in the way of his performance.
Others were equally (and probably more) dedicated. In the earlier dry times it wasn't uncommon to be deferring paychecks.
3. Make something people actually NEED -- particularly during bad times
When we started the company, we noticed that most enterprises were still doing multi-year projects to consolidate and synchronize all of their user repositories with a technology called "meta-directory".
The underlying need was to get all user information into a single place for portals, ERP, HCM, CRM, and related business applications. These are big, important applications and every one of them needs information about usernames, passwords, roles, department numbers, reporting hierarchy, and so-forth to function.
This may seem trivial, and today using software like Oracle Identity Management it's a lot easier, but at the time it was a black art requiring lots of consultants, lots of software, and Big Dig style project timelines (and success rates, unfortunately).
We simply shrank many of these projects from years to days and the results couldn't be ignored.
One particular customer implementing a CRM solution with a lot of consultants estimated that they saved something like $10m in consulting over-runs alone.
You have to be having a huge impact that can't be ignored simply because you're not the right vendor. This is especially true when times are tight and customers become more conservative. Customers know that a lot of smaller vendors won't make it and don't want to be stuck with abandonware.
Looking forward to comments. Thinking to do a few more posts on this topic if there's any demand.