Tech, Startups, Capital, Ideas.

Dear Shareholders,

This year we have many things to be thankful for, not the least of which is our hard earned capital in the bank raised just weeks before the crisis. Thank god we aren’t raising money now or we’d be stuck in deep do-do trying to sell our wildly optimistic (some might say delusional) Web 2.0 business model. If you think we have any chance of making money in this lifetime, well let’s just say you guys must still believe in Santa Claus. (Hell, after our first round I believed Santa had relocated to Sand Hill Road.)

I guess now is the time to let you in on the “real” plan. We never planned on building this thing. What we’ve always wanted to do was to raise money from saps – whoops, I mean nice guys – like yourselves – and then flip this sucker to Google or … well, to Google, anyway.

I am very thankful that I’m not Jerry Yang, who, when he was offered a nice piece of change from Microsoft, turned it down even though he had no real business strategy after 392 days as Chief Yahoo and employees were jumping ship faster than I can say “free beer in the lobby.” If Mr. Schmidt comes knocking on our door with money in hand – as I pray he will – you can be sure I will take it.

Now, to my fellow entrepreneurs who are busy raising money, I want you to know that I feel your pain. If only I could share some of that $25 million we recently put in the bank. Some of our investors – now that I’ve let them in on the real plan – might want us to do just that. Although I’m generous with my sympathy I’m a little less so with my money. I mean think of how hard I worked on my story (an epic worthy of the greatest storytellers in history like Homer, Steve Jobs, and P.T. Barnum) to get all that cash.

On a final note, I want to thank our employees, whose dedication to our cause is nothing short of incredulous – I mean, incredible – and we appreciate that you were willing to take a 10% salary cut in order to stay. We firmly believe that despite the public market comps, we will be worth a whole lot more in the not too distant future. Some would say there’s nothing but upside for us. I believe that 2013 is looking like a really great year.

Dear friends, this year has had its challenges and while many VC’s are already calling 2009 a “write off” year, we remain optimistic. We look forward to welcoming Jerry Yang’s replacement. We think our two companies could benefit from working together. They have a service and we have proven ourselves experts at marketing. I can only hope the new CEO is as much of a Yahoo as the old one was.

Happy Thanksgiving.

It’s all too easy in an environment of uncertainty and paralysis to focus on cost-cutting to the exclusion of all else. As the old saying goes, “you cannot save your way to success.” Making cash last is critical, but the reality is that startups – even the most capital efficient ones – burn through capital every day. Eventually, no matter how much you save, cash runs out.

The answer is growth.

Why are companies that just announced new rounds of funding cutting 10% or 15% of their workforce? Because the environment gave them – and every other startup – the reason to do so. Run lean and mean. And if your product isn’t selling, cut the burn way, way down. But startups must exit the next 18 or 24 months with growth under their belt. Otherwise they will have tread water while their competitors leapfrogged ahead.

The Myth of CFBE
The great myth of cash flow break even (CFBE) is that few, if any of tech’s successful companies saved their way to success. Certainly, many of them were incredibly capital efficient. As a boot-strapped entrepreneur myself, I recognize the value of running a lean and mean company, and I have been drawn to other highly capital efficient entrepreneurs as an investor. In this environment, as in any, it’s critical to take the pulse of the business, and especially new hires and sales, monthly if not weekly. But simply put, those companies found ways to grow even in the most difficult of environments.

From speaking with portfolio companies and my partners, here are:

10 Ways For Companies To Grow In Rough Times

1. Focus – put all the wood behind one arrow. Have the courage of your convictions to pick one.

2. Be brutally honest with yourself about how compelling your product/service offering is. It must be a must have, and if it’s not, fix it. But don’t kid yourself. It isn’t what you think, it’s what your customers think.

3. All hands on deck. Get the most out of your company. Make sure everyone understands the strategy and plan and what their role is. If they aren’t fully signed up and motivated and part of the team, let them go.

4. Qualify the heck out of your leads. Be brutal. Don’t waste time with customers or users who won’t close or a sales process that doesn’t converge.

5. Make it really easy to try out your product or service. Make sure it delivers very short time-to-value.

6. Ask your best customers or users to help you find other prospects or users within their “network.” They want you to be successful. It’s in their interest. So asking them for introductions and referrals – have them “sponsor” you into new opportunities.

7. Equip your best customers and users to be evangelists for you, and reward them for it. They can tell your story like no one else.

8. Make sure you’re delivering a “whole product.” If your customers or users don’t have time or resources to do integrations or customize your product to meet their needs, then make it easy for them to buy those services from you.

9. Be bold – be larger than life. Don’t be afraid to make mistakes. Startups are about risk/reward and in rough times, people decide that playing it safe works. It doesn’t.

10. Be totally transparent. Communicate more often. Fight the urge to hide bad news. Stand on a table every week and look your employees in the eye. Make this the most important meeting of your week and never skip it.

What Makes A Winner?
In good times, most companies don’t focus as much as they should and aren’t maniacal about their value proposition and religious about strictly qualifying leads early. They “waste a lot of calories,” so to speak.

In tough times, the winners have a combination of perfect execution and a compelling value proposition for the time – whether it’s “cut costs and do more with less $,” “drive the top line,” “provide peace of mind,” or “entertain” (to give people a break from a harsh reality) – they help the customer with the particular pain he has.

Know your customer, personally and often. Don’t take anyone else’s word for it. It doesn’t matter what size you are or what you already know. The world changes too quickly in these times. It’s what your customers think that really matters.