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Running a startup in a recession is not an easy task. All the experts say that survival is the name of the game, but entrepreneurs are hard-wired to move quickly, and simply surviving is not what you imagine when leaving your Fortune 100 job for life at a start up. It’s been frustrating, but I’ve also learned a ton. Here are five lessons I’ve learned from running a business in a recession.
1. You can save money, you just have to do more work
In the past, we came up with a product idea, got a general sense of what we wanted the product to look like, and then passed it off to the designer. Inevitably, the designer would come back with a great design, but not necessarily what we were looking for. Then we would have to go back through multiple reviews and changes. This way of working is incredibly expensive and time consuming.
Now, we do a ton of work before passing anything off to a designer. We put a wireframe together, we review it multiple times and we do a complete creative brief before asking a designer to do anything. It’s a lot of work, but that’s what start-ups are all about. The harder you work, the more you learn. Extra preparation on the front end will save you a ton of money and time on the back end.
2. Some bills are more important than others
Deciding who to pay and when to pay them becomes a very difficult decision when you’re trying to run a start up with little to no money. You have to constantly evaluate things that you would never normally think of, like, if I don’t pay rent, will they kick us out or let us slide for a few months? Or, if I don’t pay the accountant today, will I have enough in the bank to pay him in two weeks? Then there are other things like, how long can I personally survive without a paycheck?
The interesting thing is, when you’re in a recession people are more understanding. Your landlord probably isn’t filling his office space, so kicking you out is pointless. Your accountant can probably wait two weeks to get a $500 check, especially when he knows that $500 could keep your business alive. If you plan on bootstrapping your company, or waiting out a recession, you better get used to negotiating and in some cases, not paying your bills until you absolutely have to.
3. You will want to quit, and so will your partners
There’s no doubt about it, if you’re running a company with little money, you can’t move fast, you get nervous and you will want to quit. Every single person at Brazen has wanted to throw in the towel at some point. Penelope and I have had discussions about whether or not we should shut down and I’ve had conversations with the other guys about whether they should be looking for something else to do.
But a good rule of thumb is that the companies that don’t quit don’t fail. I’m convinced that the only reason the failure rate is so high for start-ups is because most founders can’t get through the dip. We’ve been in the dip for more than six months now. If all goes as planned, we’ll be able to actually run our business the way we want to very soon. But until then, we’ll keep supporting each other when we’re ready to call it quits.
4. If you don’t share your ideas, no one will know you have them
For the past six months I’ve been brainstorming different products that Brazen should launch. I have solid reasons for when we should launch them, how they will improve our traffic and how each one will help us achieve our goal of being the top network for young professionals.
The problem was that I didn’t verbalize my ideas well. I have tons of PowerPoint’s and spreadsheets with projections and wireframes, but instead of organizing everything and presenting it succinctly, I let it pile up. Finally, after talking things through for two months, we’ve determined the right direction for Brazen to go. Investors like it, the board thinks it’s great and the team thinks it’s the right thing to do. And other than a few tweaks and updates, we’re using the ideas that I had stored away on my computer for months. Going forward, I’ll be sure to present my ideas in ways that everyone understands so we don’t waste any more time.
5. Sometimes the best breakthroughs come from arguments
A few weeks ago, Penelope came into my office on a rampage. She screamed and yelled, and she called me a jerk. So, I yelled back. This went on for a solid ten minutes before it dawned on me. She wasn’t mad at me. She was mad that we have such an amazing business plan, we know exactly where we should be and we know how we can get there, but right now, we’re not even close.
I pointed this out. She agreed, and ever since then we’ve stopped blaming our lack of execution on not having money and decided to focus on putting processes in place and getting everyone to do their job. In a few weeks, the whole culture has changed. We all know exactly what we’re doing, our meetings are productive, and we’re all working towards the same goal, even if it’s not as fast as we would like.
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May 29, 2009 3:50 pm
If you can't make payroll or pay your accountant why do you even need rented office space? Meet your partners in a coffee shop, meet your clients at their office.
Beware the hidden costs of paying your bills late. Your vendors and freelancers, just like employees, will not want to go the extra mile for you.
The other side of cashflow is getting your clients to pay you on time.
May 29, 2009 5:03 pm
Great post, Ryan! I am glad that the company is finding a direction and that you are doing well!
And the skill of being able to present you ideas and back them up with compelling and persuasive arguments is soooooo important, that it deserved 5 extra "o"'s in that "so". It is always very hard to learn and I am glad that you are learning it. Maybe you should follow up on #4 in another post and talk about it more in-depth.
May 30, 2009 8:05 am
It ought to be noted how you, Penelope, and Ryan P blog so openly about each other and the state of the company. It takes a lot to do, and I think really helps to make people feel like they're included on what's going on. A lot of companies let people know about their successes, but skip over the struggles, but I think being included in the struggles in a tactful way builds even more loyalty than successes, or makes the successes even higher. Or I could be entirely wrong.
You guys considered ebooks for extra revenue generation based on all the talent and information you have (not sure what the ROI on that would be, though).
I found the part about the bills rather interesting : )
You all have the talent for the execution.
May 30, 2009 2:48 pm
I was watching this program on "Human Body" in Discovery, it was just amazing to see how our body performs when pushed to the limit, how our central system goes to a "Crisis Mode" and how efficiently it conserves energy and how in extreme mode it has its order of shutting down organs
I felt there is a lot we can learn from that program - start-ups run on little or no money, crisis management is everydays' job. Crisis and failures are essential as thats the only way we know what we can live without.
May 30, 2009 8:51 pm
Ryan,
That's an awesome heartfelt blog. We started a dating service and we are feeling the pinch of recession too and could relate to your comments.
It takes a great amount of will power and patience to grow a company. And I think you are pulling it off great with this website. You seem to have a strong loyal user base. Keep riding the waves ... best of luck
May 31, 2009 7:26 am
This is true. All of it. Great post. Really great post.
May 31, 2009 12:07 pm
@GenXMom - thats a good idea in theory, but you also have to think about things like where we will store our servers if we dont have an office. Also, at some point moving out of an office can cost you a couple days of work that you can't afford to miss. It's not out of the question, but we're trying to stay put until we absolutely cant afford it.
@Irina - good call, maybe I will follow up on #4. You'll be able to see one of the ideas live on the site in the next few days....stay tuned.
@Nathan - thanks for the kind words. I don't see a point in only writing about the good things that happen to you. Writing about the hard times allows other people to learn from you, and it allows you to step back and think about what else you could be doing. The Ebook idea could work, not sure if there is enought revenue in it though. Ill keep you posted.
@Rahul - Thats an interesting point. Running a start up is like always being in crisis mode. And I'm sure there are positives and negatives to it!
@Vivek - Thanks! And good luck with your site as well.
@Sam - Glad you enjoyed it. I have a feeling you can relate :)
-Ryan
May 31, 2009 6:54 pm
Out of exploring entrepreneurship curiosity, do you think these factors are limited to JUST recessional times? I feel like there are many facets that extend to both the best and worst of times!
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