Thinking Thin as Start Up Companies Begin to Die

The economy continues to weed out the weak. Pui-Wing Tam and Ben Worthen of the Wall Street Journal describe the great and terrible shakeout that is happening among start ups. In fact, the average price for each start up sold has dropped from over $50 million in Janaury 2008 to less than $10 million in January 2009. And the problem isn’t limited to just Silicon Valley, either. From CA to NY small companies, particularly high-tech start ups, are struggling to keep their lights on.

In response, owners need to be “thinking thin”. The line between want and need is much more obvious during times of economic drought and entrepreneurs must evaluate this difference before investing in any resource of any size. Think you need that new copier? Think again. Tired of that 3 year-old laptop? Live with it.

I once consulted for a small, venture-backed internet company that provided a distance learning solution for diploma-seeking students. It was an educational experience and I really enjoyed the people who work there. Although, I had somewhat of a cultural shock on my first day that made quite an impression on me. The working space was a large common area. No cubicles. No independent offices. Just one big happy family. The copy machine was sitting on top of the box it came in. The walls were bare–no pictures. There were no expensive desks. No high-priced fixtures. And no designer furniture.

Why would they do such a thing, you ask? Simple. They didn’t need it. They would rather reinvest their discretionary money into making the company more profitable for the stakeholders. And as far as I know, the company is doing well and its top line continues to grow. This experience taught me a lot about the benefits of frugality and responsibility to investors.

I once heard a similar story about Sam Walton, Founder of Walmart. Supposedly, after a company party had ended Walton was seen at the refreshment table consolidating the half-empty bottles of Coke. Why? To save it for the next party. Okay, this anecdote may be only partially true. And while saving refreshments was probably not the reason Wal-Mart has become such a powerful firm, it still serves to remind us of the value and ethics of thinking thin.

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2 Responses

  1. Great information to consider.

    Additionally, it’s that shared misery that really binds a team. Working in an office with little or no furniture, that’s a rather unpleasant environment. But those experiences bring people together and define the culture of a small company.

    Right now I’m working on a start up project that is going to be based out of a partner’s spare bedroom and his backyard. One other idea I’m currently working on is going to be based out of my garage. In this environment, keeping operational expenses as low as possible is going to be key.

  2. Great comment, Chris. Thanks for stopping by. I’d love to hear more about that backyard project of yours.

    Jacob

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