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Friday, January 19, 2007

Startups, Cash Burn & Success

Startups tend to spend less and conserve more cash these days says this WSJ article. Today's start-ups,says the article, “hoard their cash and find inexpensive ways to attract attention resulting in reduced start-ups' "burn rates". This way the current tech boom may play out differently than the dot-com frenzy. As start-ups aren't going through cash at such a blistering pace, that gives companies more time to figure out what works in their business. Many venture capitalists right now are flush with cash to invest, so some are giving bigger-than-needed chunks to start-ups. They also like to give more so start-ups have enough socked away in case of an emergency. The start-ups that save are also finding their cash cushion gives them more time to tweak their products and business model.
All these are fine, but I would personally like to see startups focus better on business models, go after innovation, push new frontiers and more importantly get revenue going – this is the time they can take more bold steps given that additional rounds of funding can be got more easily. As I see it,startups are very essential for the growth of the business ecosystem. By definition, startups have a different velocity, rhythm and in the course of its growth, may have to make multiple decisions – therefore the team matters a lot. Funding is not the be all and end all - while it is certainly the NO.1 issue in any stratup, the execution strength, speed and innovation would matter a lot more.Bigger organizations could do with more heterogeneity and capability spread in a wide band but startups are different. As the Friendster story shows, execution strength, sense of timing and exit strategies would be very important. Clearly all through, key people in startups need to stay hungry and foolish.I think clarity of idea, robust business model, flawless execution, customer and market focus, constantly reprioritizing and realigning , transparency, clear thinking, quick decision making, retaining the risk propensity, growth focus, full involvement and a bias for action amongst the founders and key employees all would make the difference between winners and wannabe’s.

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