The playbook for startups in Silicon Valley has been crystal clear for years (if not particularly economically). Raise as much as possible and never refuse money. Get users, more users, and then more. Find out the business model part later.
Ultimately, get that valuation of over a billion – and you did it.
At the beginning of 2020, however, the glory had already dropped from the overvalued company with a scary balance sheet (see WeWork, Kasper). I have long been in favor of a new generation of startups – "stallions" – companies that may not be as sexy as a booming consumer app, but show admirable tax caution.
Now that the effects of the COVID-19 crisis dominate the economic environment and threaten to do so in the foreseeable future, the need for stallions is all the more obvious.
That means all the rules you think you know about building a tech startup have been completely reversed. Ultimately, this is a good thing for those who have the courage to invest in difficult times. Here's how:
Delay fundraising as long as possible
There is growing awareness that it is best to be a slim startup, but very few startups are actually slim. The culture of massive VC support can be difficult to resist.
Egnyte already recorded steady growth in 2013. At that time, our investors were pushing us to raise more money. We said no. People thought we were crazy. The truth was we weren't ready. For one thing, we were not yet completely on our business model.
If you don't survive alone, the market may tell you something. More money might help, but it could only make things messier.
Don't find your business model at a different price
This may have sounded heretical a few years ago. People might have said, "This is what the funding is for – to take risks and turn and then turn!" No more. Currently, startups need to start their business with a capital-rich mindset to get positive cash flow as quickly as possible. This is the best way to ensure that your startup has identified a real need and is on the road to sustainability.
Expand if you have already exhausted your original market
We have seen too often how potential unicorns were introduced to new regions – or worse, new products or markets – before they mastered their core competencies. This leads to distractions and slow reactions and mistakes.
Collect money from a position of strength – when it's time to hit the accelerator
When Egnyte finally raised more capital, we really nailed our model down and the company was about to start. An infusion of cash helped us to expand quickly and take advantage of immediate growth opportunities, not guesswork. That's when you should take cash.
Hire the best talent wherever you can find it
Creating a culture of inclusion is about more than just decency and common sense – it is a great blessing to the end result. The data is overwhelming that companies with a more diverse workforce outperform their competitors. A frequently overlooked consideration is geographical diversity. If you hire exclusively in Silicon Valley or in established technology centers like Austin or New York, you may be accidentally excluded from the best talent. One of the best things we did for Egnyte was hiring key remote employees and opening offices in Poland, Raleigh and Spokane. The expansion of the opening has helped us to attract people with different backgrounds and experiences, and this has contributed immensely to our success.
In fact, a quarantine silver lining has shown how productive our remote teams really are. This is an encouraging sign that remote hiring can open a whole new world to today's startups.
Think about acquisitions
Acquisitions are a challenge even for the strongest and financially sound megacorporations or conglomerates. There are compatibility problems, impending cultural problems and more distractions. But we saw a lot of unicorns that bought companies just because they could. In this climate, if an acquisition does not add exponentially to your own business or outperforms the competition, it will likely stumble and bring new headaches to your life.
Delete an IPO
It will take a while, even for the safest things in the startup country. Stick with building your business. the rest will follow.
I understand that some of it is difficult to hear and even more difficult to grasp. But at some point we will all grow up and realize that unicorns are not real. But stallions are. They are strong muscular sports animals. They put on blinders and run.
They can go faster and farther than other animals for a reason.
Vineet Jain is CEO of Egnyte.