Burn Baby Burn
There is something supremely funny about VCs complaining that their start-ups behave like funded start-ups and not like bootstrappers, who focus on revenues and profits right from day 1."At some point you have to build a real business, generate real profits, sustain the company without the largess of investor’s capital, and start producing value the old fashioned way. "Exactly. So how annoying it is when you're bootstrapping a company, you have your price-points carefully set, you're doing a cracker job at concentrating on 'how to sustain the company without investors capital' and then boom. Out of the blue some never-heard-of before company that does the same thing you do starts to hit your customers with a price point that you simply can not beat because they are able to 'burn baby burn' or maybe even give away that identical product for free because they're racing for an acquisition before the money runs out.That's real trouble. Sometimes it's not just one.But there is good news: they usually don't survive in the longer term because they don't have a business model. Once it's free you can't really go back to 'old-fashioned'.So once they've folded up, you've bought their Aeron chairs at 5 cents on the dollar and you're re-connecting with your old customers and picking up the pieces you have a fairly clear field. Contaminated by an over-promising under-performing competitor that thought that 'growth' is equal to 'health'. (If that were true then cancer or a locust plague would be good news.) How you're going to survive the interregnum of unfair VC funded competition is a really hard question for which I have no other advice than to cut every bit of spending and go into 'cockroach' or 'spore' mode, hang on to your core team at any price.VCs should be far far more critical about the companies that they invest in, that the path to break even is clear and that they are not going to invest in a company whose business model is broken but where the cracks are paved over with marketing and growth by burning investors money.That just spoils the soup for everybody and sometimes it kills entire segments.Especially companies where investment is made in B, C or even later rounds should be looked at very carefully. A healthy company would survive and grow even without VC investment, it's supposed to be an accelerator, not life support.So burn, but burn with care and a very good plan. Concentrate on your bottom line taking into account that VC capital will not last forever and make sure that the transition from 'supported' to 'unsupported' is a smooth one and that your business model does not somehow depend on the 'supported' bit in a hidden way.If you're partying like it's 1999 you're definitely doing it wrong and your bubble will almost certainly pop, the more VC money there is the more of it will be dumb.