While it may be tempting to smile and nod approvingly at this dose of business reality, there's a ripple effect to be aware of.
As reported in the May 31 edition of the Wall Street Journal*, "Their advice includes cutting costs, preserving cash, and jettisoning hopes that hedge funds or other investors will swoop in with big checks."
- "The cost of capital has changed materially, and if you think things are like they were, then you are headed off a cliff like Thelma and Louise," wrote Bill Gurley, a partner at Benchmark Capital.
- Sequoia Capital "advised companies to cut expenses quickly and preserve cash. Companies need to control spending, focus on quality and lower risk."
- "The boom times of the last decade are 'unambiguously over,'"asserted Lightspeed Venture Partners.
- Y Combinator "is urging founders to cut staff, reduce ad spending and raise prices."
Quite a wake up call for some of these firms. But one that could have a major ripple effect for your business.
Because many of these firms are likely ones that you have begun using, whether to source product (online wholesalers), host your e-commerce operation, provide delivery services, provide your payment processing, or POS services, or payroll services, or do your bookkeeping, etcetera.
- What actions will they likely take to please their investors?
- What might their scramble mode to focus on profitability look like?
Today's announcement about venture capital money's warnings to tech startups may seem a distant issue. But we see it as a major "heads up." Better to be advised than blind-sided!
* "Startups Get Tips on How to Stay Afloat," Meghan Borrowsky and Vital Monga, The Wall Street Journal, May 31, 2022.