Editor Profile - Denny K Miu was the Founder and former CEO of two companies, Gigamon Systems and Integrated Micromachines (now Touchdown Technologies). Denny has extensive experience in developing technology, products and business relationships. He has been a Professor, an engineer, an entrepreneur, a team leader as well as an individual contributor.
Denny is currently the Executive Editor of LoveMyTool.com, his third start-up. You can follow him on Google Buzz or subscribe to his RSS feed.
The stock market rebounded almost 1,000 points today. The worst is over, right?
I know how important it is to stay optimistic and as entrepreneurs, we are by natural an optimist. But having survived the last economic downturn and seeing what I have been seeing lately which clearly indicates that this downturn is going to be much worse, much boarder and much more sustaining, my advise to fellow entrepreneurs (especially those who are CEO’s) is that “don’t be an optimist”.
This is the beginning of the beginning. It will get a lot worse for a lot longer. My previous experience is that “just because you think it couldn't possibly get any worse doesn’t mean that it will get any better”. If you are a CEO running a startup, whether your company is profitable or not, now is the time to cut at least one-third of your workforce and make sure you have enough cash in your bank to sustain two to three more years of burnrate.
If your company is not yet profitable, then burnrate is simply equal to your fixed cost. If your company is recently profitable, think about what happens if your revenue suddenly goes down to zero. Keep in mind that just because you sold $1M last month doesn’t mean that you will get a $1M worth of incoming cash. What if your customer doesn’t pay, or if they decide to pay in 60 days. What if an entire sector of your customer base disappears overnight.
And if you rely on third-party resellers as your distribution channel as most startups would, the problem will get much worse. These guys have no line of credit. They can only pay you when they get paid which would in the best case scenario, add another three weeks to your receivables. Keep in mind that chances are that your suppliers will start to demand cash upfront. So you will get squeezed on both ends. Things can get really nasty really fast and now is the time to make drastic cut.
Unfortunately cutting fixed cost means cutting headcount. In other words, now is the time to lay people off. It is a very tough thing to do, especially for inexperienced entrepreneurs. But as the CEO of your company, your responsibility is to your shareholders, not your employees and not even your customers. Also, by cutting now, you could improve the chance of saving jobs for the remainder of the team.
In summary, what I have learned is that as the CEO, “your most valuable asset is your money, not your people”. I have learned this lesson the most painful way possible. It is the best advise that I ignored. Let it not be yours.
Read here, here and here for similar advises from other experienced entrepreneurs.
Click here to read other chapters of Denny's 2nd Book »
