Brad Feld’s Advice to Entrepreneurs

“My recommendation to all of you entrepreneurs out there is to get off the negative sentiment treadmill, step up, and lead. The people working for your company are likely confused, concerned, and overwhelmed with all the noise in the system. In the near term, building your business will likely be more challenging on a number of dimensions. So what – that’s the normal cycle of business. You don’t need to be a blind optimist and spout happy talk, but you do need to have a clear sense of purpose and goals for your company. Leadership 101. When I look back at the dotcom apocalypse that was 2000 – 2002, I realize some of the best companies I’ve ever been involved in were created during that time. In the midst of this, I remember the endless stream of “the Internet is over” and “the information technology business in now a mature business and there will never be innovation again.” Yeah – whatever. Get some exercise, take a shower, eat a good breakfast, and get out there and build a great business.”

Originally from AVC.

The presentation covers what got us into this mess, and how startups can help shield themselves and hopefully make it through this intense downturn. It’s interesting to ask yourself, why didn’t Sequoia make sure their startups were briefed with this presentation before they were funded? All of the principles highlighted below are relevant in good or bad times …

How To Stay Afloat In This Economic Crisis

Some of the most important points is becoming cash-flow positive, and cash is king. All related to generating revenue.

Here are a couple of articles we’ve written on how to maximize your cash flow, during good and bad times:

How To Start Selling Advertising
How To Write-Off Startup Costs
Startup Costs Reduction Tips from the Airline Industry
Bootstrap Startup Funding: Maximize Cash Flow & Looking Good for Investors

They cautioned their portfolio companies that this may be the worst economic downturn that you or your company has ever experienced, so be prepared.

Words of Advice to Startups

Sequoia gave their companies some guidelines to help them through this time, because things are going to get rough:

Raising capital will be much more difficult now. You should lower your “burn rate” to raise at least 3-6 months or more of funding via cost reductions, even if it means staff reductions and reduced marketing and G&A expenses. This is the equivalent to “raising an internal round” through cost reductions to buy you more time until you need to raise money again; hopefully when fund raising is more feasible.

What Are You Doing?

Is your startup hitting a rut? Do you have enough cash on hand to make it through the downturn? How’s your burn-rate looking? Good luck, because we’re used to buckling down and it’s only going to be stepped up going forward.

That didn’t stop me from talking up our plans, aspirations, etc. but sadly we weren’t there yet. Now, Grooveshark is turning the corner, and we’re picking up steam fast.

ReverbNation has now picked up an additional $3 million from ETF Venture Funds, adding to the $2 million originally raised by Southern Capitol, based out of Durham, and Novak Biddle Venture Partners.

If you’re an artist looking to promote yourself online, check out ReverbNation, grab some of their great tools, and start promoting yourself online, on Facebook, Bebo, Hi5, etc. and tell Mike I sent ya

Startups Produce a Better ROI

For startups, the biggest hurdle really is money, money and attention. Rhapsody and Napster are in the limelight all the time. They trade on public stock exchanges, Napster carries HUGE name recognition from the late 90s and eMusic has been one of the staple eTailer of music for the past decade. All of this, and iMeem is still crushing them. iMeem has no commercials on MTV, no $50 million advertising budget, no hardware support, and they were sued by all 4 major labels. Despite their best efforts to raise as little money as possible, and get sued by 4 major labels, iMeem has been able to triumph while these household names have simply fluttered.

So the question is: why is iMeem doing so well? Personally I never had heard of iMeem prior to joining the digital music revolution, and have never really seen any of their ads or widgets or really anything on any of the sites I visit. Are startups simply better at spending limited budgets and squeezing out the best returns?

Any ideas you can throw into the ring as to why iMeem is doing so well? Yes, iMeem is an internet company, but Rhapsody also points users to its Rhapsody.com site to download music (per the VH1 commercials).

Fortunately, you have a great resource for initial capital investment right when you’re beginning to start your company: your friends & family (and fools).

Friends & Family Are the Best First Capital

There’s the old cliche that friends and family are the first place to start for capital, and like many old cliches, this one is 100% correct. As you’re starting to develop your company, you’re going to be pitching to as many people as possible, and your friends and family are most likely to be the recipient of one too many pitches. Luckily, however, as you continue to pitch, you learn to refine it, and in one of those iterations, you may finally strike a chord with your first investor(s).

Early on, before you have a concrete product or even fully-fledged business plan, investors are investing in you. They’re investing in your ability to see your idea through to fruition. What better people to invest in you than those that have done their “due diligence” on you. Growing up, every honor roll and award is essentially like the VC poring through your resume to see if you’re fit for the job.

Now that we’ve echoed on the great reasons to raise money from friends, you have to understand the huge risk and complications that can result from taking money from family. Unlike institutional investors, your family does not have a $500 million war chest just lying around, and they probably have a lot riding on you and your startup.

Additionally, if you’re ever dealt with investors before, you know this better than anyone. But having “dumb money” on your term sheet is a horrible ordeal. You will constantly have them stopping in the office, calling you, emailing you, whining, complaining, etc. The easiest way to get rid of this nagging is to find more investors, investors that have more money and thus dilute your original friends & family down to a non-participatory role.

Anyone else, please share your early investing secrets in the comments.

We’re going to be presenting on Thursday at 2:30pm, so if you’re in the area, be sure to stop by and say hi:

By the way, if you haven’t yet, check out Grooveshark Lite and listen to any song in the world, for free.