Linda Bonanno's Weblog

This article from Business Week brought back a lot of memories for me about the dotcom bust. Jason Calacanis talks about a lot of very difficult decisions that he has made and that he suggests that CEOs of startups should be considering in this economic environment.
“A lot of CEOs with less than 12 months of capital left in the bank have been asking me for advice about what to do, given the massive economic turmoil we’re facing. I thought I would take the time put these various conversations into one place to help those who are “up against it,” as we say in Brooklyn. The result is intended for the entrepreneurs behind startup companies who know in their hearts that their investors have lost faith, and that Google (GOOG), Yahoo! (YHOO), or Microsoft (MSFT) aren’t going to pick them up on a magic M&A carpet ride.”

From 2000-2005 I worked for a now defunct networking equipment maker. During the heyday we grew to over 350 people with 3 engineering offices spread across the US plus sales offices in Europe and Asia. All told the company spent hundreds of millions of investment dollars trying to build some really amazing next generation networking technology. A lot of that cost was due to the sheer amount of resources required to build such a product, and the exorbitant cost of developing custom ASICs. There also were a lot of bad decisions made. We had the swankest office digs I have ever seen. We had a company car at each site. We had salt water fishtanks and water walls. We had massage chairs, espresso machines, foosball tables, and pool tables. We thought it would be wise to start working on a second product line before the first was even close to completion. All in all we were going through a lot more money that we should have, and I think some of the employees recognized it early on. Back then every company was doing it. You had to have all of the perks to keep people interested in working for you in Silicon Valley.

Once the dotcom bust settled in, the board switched out most of the executive team. We developed a fiscally conservative policy and things really changed. We went from 350 people down to a little less than 100. We closed one development site and subleased a significant portion of the other two. We looked for every way to reduce costs to the minimum to survive. Unfortunately we had blown through a huge cash cushion that could have helped us weather the path to profitability. I still admire the strength of the executive team and the hard decisions that they had to make back then. They didn’t run and hide from the problem. They attacked it head on. If that type of conservative management had been in place from the start I am sure that the company would have survived and been successful. Once the dotcom bust ended the company had gone to the well one too many times and the investors sold off the IP. I saw the writing on the wall well in advance of this event and I left about a year before it occurred.

This part of my work history is really sad for me. We built a great product. We had a terrific team – and it was a very tight knit one after the company shrank. We had clear corporate goals and priorities. The economy killed us, and I believe that happened because of the sheer amount of spending that occurred. We didn’t prepare for a rainy day.

I hope your company is ready to weather the worst and is planning for survival.