4 Do's and Dont's Every Startup Investor Should Never Forget AboutRead more...
Venture Capitalist Ken Sawyer says communicate, play offense, and be a salesman
In this segment of Lessons Learned for entrepreneurs, Bambi Francisco asks Ken Sawyer to share three pieces of advice for entrepreneurs who are struggling with building their business during the economic downturn.
KS: The first thing I would say is over communicate. I think in this period of time, we have to recognize that customers, suppliers, employees, shareholders, and venture capitalists all want to learn about what's going on. Communication can be very important during these tough times and I think the fact that our suppliers are struggling, our customers are struggling, and often our venture capitalists are struggling for exits. The communication that a company and a CEO can do for its employee base and its investor base is really important. Because with that communication there is less of a chance of issues evolving into a conflict, and of difference of point of view, and keeping people in line is super important especially in this tough time period.
The second thing I might say may come contrary to the advice that's already out on the internet. Keep in mind that while yes you have to play defense, hunker down, or batten down the hatches, we often say play offense as well. I often give a sports analogy of hockey or soccer where there are a lot of short-hand goals that are scored in these things. It doesn't mean that you are out playing offense. You're out playing defense but every now and then, as you're playing defense to guard your goal, there's always an opportunity to score. I think entrepreneurs need to realize that as much as it is important to play defense in these difficult economic times, you have to look for these opportunities to take the ball or puck, and give your company a chance to succeed and to win in a difficult environment, meaning can you steal a customer.
The last piece of advice is take a look importantly at the sales process. The sales process is one that is very difficult because there's a pipeline. And in managing that pipeline, often I ask what is the critical path of that pipeline? Do you have one or two great sales guys? Can you get them one or two meetings? What can you do to free up the most constrained part of that sales process? Often a CEO wants to add more sales people. But they should be adding people that would free up the best sales people to make that sales process most efficient as possible in a very difficult period of time. So those are the three pieces of advice I would offer.
BF: Over-communicate, play offense and defense but take advantage of this downturn to get certain deals, and support to your sales stuff. In your letter to your CEOs, you talked about equity risk premiums are five times higher than they really are. VCs are struggling to get a return on the higher cost of capital but because of this risky environment, they need to ht huge home runs, they are executing on these high risk deals at a time when they shouldn't be.
KS: I think the key thing to understand for an entrepreneur is that every dollar is more precious in this environment where access to bank debt is reduced, and access to equity capital is reduced. When you have less money, the cost of that money is going to go up and therefore the return expectations that a venture capitalist has are going to go up in a capital constrained environment. And if you're a CEO and you're going to have to ask for more money, do your best to see if you can get money off of the balance sheet, venture lenders, or even banks. It's more expensive now than it ever has been before because returns that VC are expecting, will be going up.
Read more from our "Lessons and advice" series
Often times the wrong people are in senior positionsRead more...
Advice on how to approach your startup's next meeting with a potential investorRead more...