How To Be a Startup in a Down Economy

It is not an easy time for startup companies. The economymay be starting to recover, but investors are stillleery about pouring money into new businesses, especially in the tech sector.

In fact, the best advice for would-be entrepreneurs may be to hold off until the economic climate takes a more positive turn.

“If you can wait, do. This is not a good time,” GigaInformation Group analyst Andrew Bartels told theE-Commerce Times. Venture capital is notreadily available for new tech companies, he said, andcompetition is fierce. Also, there is little customerinterest in and demand for new Web products.

Think Profits

For those who choose not to heed that warning, however,success is still possible. “There are a lot of hurdlesto get over. That said, it’s not impossible,” Bartelssaid.

“If you’re starting a company, it’s a difficult timeto raise capital, but companies can still do it,”GartnerG2 analyst Jorge Lopez told the E-Commerce Times.

One thing that has changed dramatically for startupsis the role of profit. Making money seemed tobe a secondary concern of many startups in the 1990s,but in the current environment, it must be at the topof the list.

“Make sure that your business model at some point willyield profitable results. It seems like an obviousthing to say, but it wasn’t so obvious two years ago,”Lopez said.

Experience Counts

To succeed, startups must be very focused. “There areniches in the market. Find them, identify specificproducts and niches, and go after those. Don’t try tobe all things to all people,” Bartels said.

But a great idea is no longer enough; a startup nowmust have experience as well. The management team has always been crucial for startups in any industry, butfor a couple of years at the height of theInternet frenzy, that fundamental was ignored.

Now, after many well-publicized Internet flameouts,venture capitalists are getting back to basics. When it comes to management, they are looking for amuch different executive profile than they were seeking three years ago.

“It used to feel like if you were over the age of 25,you were washed up. Now, people are looking for moreexperienced management, not just a pure visionary,”Lopez said.

It is especially important for a startup to have astrong management team because it must show tangible resultsquickly.

“The cornerstone of any startup is people,and people who know how to make it happen. The problemwith a startup is you have to know how to make ithappen in a very short period of time,” Lopez said.

Don’t Be Lavish

Another key to success is controlling costs. The daysof expensive lunches, lavish offices, sky-highsalaries and huge parties are gone.

“It’s important to focus on launching in the most cost-effective [way] possible,” Bartels said. “There simplyis not funding out there for any kind ofextravagance.” To that end, he said, startups should useoff-the-shelf technology and perhaps even used equipment.

In addition to keeping costs under control, startupsshould make sure they focus on fundamentals. Accordingto Bartels, Web startups should have an easy-to-navigate Web site, “rock solid” fulfillment, a telephone customer support system that is ready and tested, and a good strategy for marketing and building awareness of the company.

Small Is Good

Bartels cautioned that e-commerce companies inparticular should concentrate on remaining small andfilling a specific niche. “E-commerce is anenvironment where either the very big or the verysmall can succeed,” he said.

Mid-size businesses have to have the sameinfrastructure and support as larger Web sites, according to Bartels, but they do not have the revenue and transaction volume to make their sites profitable.

“Niche companies can operate with a simpler Web siteand manual fulfillment because they’re not expected tohandle 1,000 different customers. They would behappy with 100 customers a day,” he noted.

A final bit of advice: If at first you don’tsucceed, quit. “The odds of a startup going from seedto IPO [initial public offering] are actually very, very low,” Bartels said. “If you’re going to fail, fail quickly and move on.”