Memories of the dotcom bubble bursting in 2000 are often short, even in Silicon Valley, ant at times even nonexistent for many Ivy League or Stanford MBA wunderkinds who were in elementary school at the time. But these young, brilliant minds are what thousands of angel investors are betting millions of dollars on in the hopes of getting equity in the next Google. These groups are also, according to billionaire investors Mark Cuban and Bill Gurley , exactly who will be responsible for the next, and in their mind inevitable, big tech crash.
A Penny Spent Is A Penny Burned
“Burn rates, the amount of cash companies are losing every month to operate, are higher than they have ever been,” according to Gurley who says that spending by VC-backed startups is basically out of control . The type of financial outlay that Gurley suggests these early startups of committing is unsustainable in that they are spending in excess of their revenues in attempts to drive growth. This strategy exposes the company to burning out before it has established a solid, foundational business model simply by establishing risky business habits that are, according to Gurley, shortsighted.
But to all rules, of course, there are exceptions. The business software maker, Slack , is breaking even the wildest of molds in every single way. Not only has the company, originally founded as a failed gaming application, reached a billion dollar valuation in an unprecedented eight months, it is doing so while producing admirable revenue with strict adherence to sound financial operations. Purported to only be burning $100,000 a month, the company is rising at a meteoric rate of 7% growth, each week. Yes, it’s true that this type of growth is unsustainable, but having had this growth for most of a year combined with fiscal discipline and a $1 billion bankroll is a reliable recipe for long-term stability.
Hedge Early, Hedge Often
For companies of any size or description, simple steps can be taken to ensure long-term financial stability in the face of market volatility. In this case, the best offense is definitely a good defense. Companies like Slack that are disciplined in their expenses have the best chance of combatting any threats to their business, of course the billion dollars doesn’t hurt, either. For companies that don’t have those coffers to rely on, though, simple steps, like vetting utility providers, can prove invaluable. Flexible payment plans, modifiable options and features, and pooled resources are all characteristics of a solid service partner. And find those partners will be key to many businesses’ success or survival, depending on which direction you see the market heading.
This article was contributed by Dan Quick VirtualPBX .