Surviving a rip tide, or
practical tips for executing in a
How to survive a rip tide
• Rip tides are long, narrow bands of water that quickly pull any objects in
them away from shore and out to sea.
• They are dangerous, but are relatively easy to escape if you stay calm.
• Do not struggle against the current. Most riptide deaths are not
caused by the tides themselves. People often become exhausted
struggling against the current, and cannot make it back to shore.
• Do not swim toward shore. You will be fighting the current, and you will lose.
• Swim parallel to shore, across the current. Generally speaking, a riptide is
less than 100 ft. wide, so swimming beyond it should not be too difficult.
• If you cannot swim out of the riptide, float on your back and allow the riptide
to take you away from shore until you are beyond the pull of the current. Rip
tides generally subside 50 to 100 yards from shore. Once the riptide
subsides, swim parallel to shore and then back to shore.
Source: Popular Mechanics, December 2003, “Worse-case scenarios: How to Survive a Riptide”
• Many of the suggestions contained in this
presentation were made in previous works
• Unfortunately, however, some of the concepts are
hard to grasp and, as a result, have yet to sink in
• The purpose of this guide is to elaborate on certain
key points and reiterate their importance
• Hopefully, this will help entrepreneurs and CEOs
absorb the suggestions and be in a better position
to execute upon them
You are facing a new opponent
• In boxing, you change your strategy according to the characteristics of your opponent.
• When you are fighting an opponent who has a longer reach than you, the secret is to get inside because it
removes his or her reach advantage.
• Conversely, when you are fighting an opponent who has a shorter reach, the secret is to leverage your reach
advantage by picking him or her apart from the outside.
• What has happened in recent months is that your opponent has changed.
• Whereas nine months ago, your opponent was a rival venture-backed company, your new rival is the
• Since you are facing a new opponent, you need to change your strategy.
• Nine months ago, the way you defeated your opponent was by being first to market and acquiring a critical
mass of users, but the characteristics of your new opponent are different, requiring a new approach.
• The secret to defeating this opponent, is to win by attrition.
• Don’t slug it out toe-to-toe, conserve your energy and defeat your opponent by outlasting him.
In case it wasn’t clear…
• We are in a new environment
• The new environment necessitates a
change in strategy
• Rather than being first to market or
amassing users, your new goal should
be to avoid running out of money
(1) Avoid running out of $
(1) Be first to market (2) Avoid running out of $
(2) Gain critical mass (3) Avoid running out of $
(4) Avoid running out of $
(5) Avoid running out of $
(6) Avoid running out of $
(7) Avoid running out of $
(8) Avoid running out of $
(9) Be first to market
(10) Gain critical mass
• As CEO, you and your team need to
pursue this goal with the same zeal,
creativity, and enthusiasm that you
once directed toward being first to
market and gaining users.
What to do:
• Understand what is happening
• Figure out how it will impact your company
• Adapt to the new environment
What NOT to do:
• get depressed
• act rashly
• lose your moral compass
• give up
• In his book, “A Life Decoded”, Synthetic Genomics founder, J.
Craig Venter, tells a story about how, when he was working as a
medic in Vietnam, patients who were gravely wounded would
sometimes live beyond anyone's expectations, while patients
who should have recovered, would sometimes give up and die.
• Venter uses the example to illustrate his belief in the strength of
willpower and the human spirit, but this is also an apt metaphor
• Specifically, those who fight, can beat the odds and survive,
while those who give up, perish.
• So, don’t give up, keep fighting!
Understand what is going on:
• For an excellent explanation of what is
going on and how it happened, read the
Sequoia and Mary Meeker
presentations, or the Bill Gurley memo,
links to which are appended hereto.
Likely effects of the crisis
• Radically lower consumer spending
• Dramatically lower corporate spending
• Less access to capital
• Lower valuations
• Longer time to liquidity
How will the crisis effect you?
• How will the economy effect your
• How will changes in your customers’
spending effect your company?
What works in this environment?
• Target products or services which:
– Reduce expenses
– Increase revenues
– Allow customers to do more with their
– Do not require your customers to make a
large upfront investment
• Utility infrastructure in the US dates from the 1950’s
• EnerNOC uses cognitive computing to, among
other things, optimize the flow of electricity over the
• This allows utilities to offer new services and get
more out of their existing physical infrastructure
without having to invest in costly new capital
• Saves customers money in concrete ways and
generates additional revenue opportunities without
requiring radical upfront investment
Renew focus on demand
• Focus on customer demand: what can
your customers absolutely not live
without (as opposed to something that
would merely add some marginal value)
Important questions to ask
• Does my customer need my product or service?
• Do they have the money to pay for it?
• Is there a customer who will purchase my product
or service independent of what is happening in the
• Focus on clients that will spend money no matter
what, ex. During the last downturn, IDEO shifted
from providing services to Fortune 500 companies,
Assess current financial position*
• How much cash do you have in the bank?
• What is the burn rate?
• How long is the runway (months of cash)?
• How many months until break-even?
* Please note that these are facts, not variables.
A note regarding self diagnosis
• Be realistic and brutally honest
• Environment has changed dramatically,
assumptions must also change
• Don’t hold onto old assumptions, throw them out and
start again from scratch
• Revisit all assumptions and submit them to a stress
test (challenge your assumptions)
• Beware self-deception and rationalization
• Does the company’s business proposition still
make sense given the new environment?
• If not, what can you do to change it?
• Are you doing everything that you can to focus?
• Are there initiatives that no longer make sense?
• Are you a platform or a feature? (Be honest!)
• Should you merge with another company?
• Should you shut the company down?
• Once you have finished the diagnosis, time to
• Act decisively, but use considered action
• Avoid knee-jerk reactions
• Make cuts all at once, don’t stagger them
(seriatum cuts kill morale and destroy momentum)
• Recognize your limitations, are you capable of
doing what is required? If not, find someone who is.
Be a leader
• Your employees, customers, and
investors are counting on you
• Now is the time to lead
• Be flexible and adapt
• Exercise discipline
• Make the hard decisions
• Take charge of the situation, don’t let
the situation take charge of you!
Goal is to become self-sufficient
• Do everything that you can to extend
• Get to break-even
• Become cash-flow positive
Three ways of extending runway
• Cut costs
• Increase revenue
• Raise additional capital
• Go through your budget line by line
• Where possible, shift from fixed to variable costs
• Try to reduce recurring costs like rent, salaries,
utilities, phone, G&A expenses, etc.
• Negotiate reductions with your vendors and
service providers, barter
• Avoid entering into long term contracts, where
possible, as prices will likely fall
• Share facilities and other resources
• Don’t spend money until you absolutely must
* Some people are great at this, if you aren’t, find someone who is
• Get creative with compensation strategies (shift
salaries from fixed to variable, cut base and
increase performance-based component)
• Tie hiring to milestones on the sales side
• Don’t hire in anticipation of growth, grow, then hire
• Ask employees to voluntarily take reductions
• Review whether positions are part-time or full-time
• Explore alternatives like outsourcing
A painful challenge
• Entrepreneurs are in the business to
build companies, not reduce them.
• Reducing a company--whether
headcount or product lines--is one of
the most painful challenges an
entrepreneur ever has to face
• Unfortunately, in down cycles, it is often
a necessary evil
• How do you figure out who to layoff?
• How do you figure out how deep to cut?
• How do you conduct the process?
Choosing who to lay off
• Drop the least productive
• Let go of people who are in areas or
functions that are no longer essential
Determining essential areas
• Start with the company’s core product or
service and work your way backwards
(remember, the product or service may have
changed in light of economic conditions)
• What products/services are essential?
• Is this position no longer necessary?
• Is this mission-critical or can it be
• Is this task better performed by a consultant?
Conducting the process
• The day before, announce that there will be
an all hands meeting
• Get everyone together in the morning
• Explain that you are proud of everyone’s
work, that the company is going to survive,
but that, due to the downturn, the company
needs to reduce its headcount
• Tell them that you will be eliminating, ex. 15
Conducting the process
• Treat employees as well as possible
• Logistics of how it is done make all the
difference, ex. have boxes for people to use
• Figure out the migration of email, return of
computers and cell phones, etc. beforehand
• Make it as humane as possible
• Do everything that you can to preserve
Conducting the process
• Inform staff that you will be holding meetings beginning at 11 am
• Ask them to please stay by their desks
• Goal is to avoid people feeling angry or humiliated
• Meetings should be short, 10-15 minutes max.
• Don’t get into specifics
• If people want to talk in detail, schedule a meeting or a call for
• Your duty at this point is to inform those affected quickly and get it
• Meeting participants should be the person being let go, plus three
or four people
• Hold the meetings quickly
• Give them time to say goodbye to co-workers, pack up, and leave
• Do this before lunch so you get everything done with
Conducting the process
• After lunch, once the affected employees are
gone, gather everyone together again
• This will not be a happy event
• Be professional
• Explain to everyone what happened and why
• The goal is to reassure employees who
remain and to restore confidence
• A few days later have pizza at the office
(make sure that it is not expensive, otherwise
you are sending mixed messages about
cutting costs), and begin to restore morale
• Extremely difficult since everyone is cutting costs
• Revisit your core product or service to see if there
are any ways of extracting additional revenue
• Acquire customers from weaker competitors
• Get creative
• Partner, acquire, or merge with a company offering
complementary products or services or with a
complementary sales channel
• In rare circumstances, consolidate and extend
Raising additional capital
• Don’t count on getting bailed out by future
rounds of funding
• Money, if it can be raised at all, will be
difficult to obtain
• It will take longer to raise
• It will be at a lower valuation
• Cost of capital has increased dramatically
Assuming that you can raise
• Raise enough to get to profitability, and
• Be prepared to demonstrate:
– A track record of meeting milestones
– A working, non-advertising monetization model
• Show investors:
– That you understand the new economic reality
– That you have a clear plan to profit from it
• Initial public offering window is closed
• Mergers and acquisitions extremely difficult
Mergers and acquisitions
• Normal acquirers, large corporations,
have their own problems
• Very little credit available to finance
• Debt markets are prohibitively expensive
• Public market valuations have collapsed,
reducing private company valuations
What are they looking for?
• Proven sales/monetization models
• Track record of hitting milestones
• Crucial market share or technology
• Public companies will only acquire
companies that are profitable or at
break-even, since they don’t want to
dilute their earnings
• Be proactive in managing the company’s
image, particularly if you are conducting lay-
• Keep customers, investors, suppliers, and
partners informed and address their concerns
• Be careful not to send mixed signals, ex. lay
people off, then Twitter or post photos on
Facebook inconsistent with the gravity of the
Morale and motivation
• Be proactive in managing employee morale,
especially in the aftermath of cuts
• Share information (do not hoard it or keep
employees in the dark)
• Manage employees’ expectations
• Redouble your efforts to cultivate a sense of
• Come up with creative (non-monetary) ways
of rewarding employees
• Don’t hide problems, delay delivering bad news,
or put everything on yourself
• Talk with members of your executive team, the
CEOs of other start-ups, investors, and friends
• There is no shame in experiencing difficulties or
having questions, everyone is in the same boat
• Chances are, someone has faced the problem
before and knows how to help!
• Difficult circumstances can sometimes cause
people to panic and behave in ways that they
normally would not
• Be careful not to lose your moral compass
• If you are unsure of the morality of an act, use
the New York Times test, i.e.
Don’t do anything that you would not be
proud to have your family, friends, and
colleagues read about on the front page of
the New York Times
Opportunities created by the
• Increased ability to cherry-pick (recruit) the best
employees, since there will be fewer companies
• Chance to consolidate and extend market share
by identifying competitors weakened by the
crisis and acquiring their customers
• Competition should revert to “normal” levels,
since there will be fewer well-funded, duplicative
• Entrepreneurs and CEOs face the worst
economic conditions since the Great
• Those that can harness their drive and
creativity to adapt and execute in this
tough environment, however, will have
a strong chance of not only surviving,
but flourishing, once the economy turns
• So, save your energy and swim parallel
• Sequoia presentation: http://www.slideshare.net/eldon/sequoia-capital-on-startups-and-the-economic-downturn-presentation?type=powerpoint
• Bill Gurley memo: http://www.techcrunch.com/2008/10/09/benchmark-capital-advises-startups-to-conserve-capital/
• Ron Conway email: http://www.techcrunch.com/2008/10/08/angel-investor-ron-conway-adresses-his-portfolio-companies-over-financial-meltdown/
• PE Hub Interview, A Q&A With Silicon Valley's quot;Undertakerquot;: http://www.pehub.com/21573/a-qa-with-silicon-valleys-undertaker/
• Mary Meeker, Web 2.0 Presentation: http://www.slideshare.net/hblodget/mary-meeker-web-20-presentation-presentation?type=powerpoint
• John Doerr, VentureBeat Roundtable: http://venturebeat.com/2008/10/29/john-doerr-10-ways-for-companies-to-stay-afloat-in-rough-times/
• John Borthwick memo: http://www.alleyinsider.com/2008/12/startup-advice-how-to-make-the-collapse-work-for-you
• Jason Calacanis blog post: http://calacanis.com/2008/09/29/the-startup-depression/
• This presentation was written and compiled by Simon Olson, a partner
at DFJ FIR Capital, Draper Fisher Jurvetson’s Global Network partner
in Brazil. All thoughts and opinions expressed herein are his own and
do not reflect the thoughts or opinions of Draper Fisher Jurvetson or
any of the Network Funds. Responsibility for any intelligent ideas
contained herein lies with Simon’s colleagues from the DFJ Global
Network who graciously contributed ideas for this presentation.
Responsibility for any errors lies with Simon alone. Special thanks to
Dan Miller for his insightful comments on how to conduct the layoff