Sunday, October 12, 2008

What's your problem?

Growing up in NY, there was usually an edge when someone asked this question. "You gotta problem?" was another way to phrase it.

Problems certainly abound these days. Everyone seems to have them. And everyone is on edge. Funding opportunities for entrepreneurs (both the regular kind and the social kind) are bleak. The perfect storm seems to be bearing down on the non-profit sector as December approaches. Year end for charities is a lot like late June for firecracker stands. To put it mildly, they raise the majority of their funds in the last 2 months of the year.

Foundations, who often set their budgets according to a tax policy which mandates that they give away 5% of their asset values, will likely cut back. If a foundation's investment portfolio is down 40%, it may well reduce its funding levels by a similar percentage. Business Week (Oct 6) reported recently that "Foundations and charities brace for blowback from Wall Street's pain," with examples of problems at AIG linked Starr Foundation and T Boone Pickens.** Regular folk too, who give an average 2-5% of income*, are likely to cut back.

Meanwhile, in a tough economy, the need for help goes up. A perfect storm indeed. I won't be surprised if the giving that goes on will have a more "give local" flavor, too. Local food banks vs. food aid for Africa. Business Week also reported that the Red Cross has started to take out loans in order to provide services to hurricane victims. I wonder where they are finding banks willing to lend?

Plain old entrepreneurs are also facing challenges. VC's are having trouble closing new funds and beginning to pull back on new deals. According to a "leaked" source, funds like Sequoia are urging portfolio companies to focus on getting to cash flow positive (a far cry from the "just get revenues so we can flip you" model). Angels are likely to pull back too, in line with their statements from Merrill Lynch (or whoever owns them this week).

It would be easy to urge T. Boone, foundations and VCs to dig deep, and invest heavily in a down cycle like this. But it isn't my money, so I will resist the urge to tell others what to do. The more likely scenario is that funders, the fundees and those in need will all turn a hopeful eye to the government. But you can bet GW, Ben B. and Hank P. aren't arguing this weekend about whether your start up is too small to fail. You will need to bail your own boat. Bootstrapping is probably the best strategy for survival- figuring out how to get along based on cash flow from customers, existing funds and ingenuity.

Bootstrapping doesn't mean hunkering down. It means getting going. Making calls, taking the meetings, leaning down your burn rate. Figuring out how to survive even if you don't get any funding. Paying particular attention to your strongest people. When the going gets tough, they need to get going... and not out the door. Being clear about the challenges the organization faces, and getting people focused on survival of the tribe. Working on the stuff you can control- selling (and collecting), spending, motivating, and communicating. And remembering that big companies act weird in times like these, and this may create opportunities for you as they jettison business, assets and people.

The fun part of being an entrepreneur is building the company through the good times, and the tough part is surviving in the rough times. Good entrepreneurs do both. I have seen (and heard about) a lot of unusual things in the past few weeks. Fear has overtaken greed. This calls for different responses in a market that is "nasty, brutish" but not short.

So, "what's your problem?" is just the start. What you do about it is what counts. As Drucker said "it is not necessary for a business to grow bigger; but it is necessary that it constantly grow better." Good words to keep in mind, even in a downturn. Especially in a downturn.
*a % of income is usually more than a % of assets (particularly if reduced by retirement assets) for many people. So you are probably more generous than T Boone, percentage wise.
** maybe this means he will need the money enough to come speak in Fort Collins on Oct 21

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