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Use a scalpel when cutting startup expenses, not an axe


Scott Lenet

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Experienced sailors know that if they turn the wheel too hard, they will soon need to compensate by turning it in the other direction, or worse, they will capsize the boat.
The same holds true for startup entrepreneurs and venture capitalists attempting to manage through lean times.
Unfortunately, many startups and their boards mismanage periods of low capital availability  —  as the current downturn is projected by many to be  —  by overreacting or underreacting.
In this context, overreacting is when you slash expenses too aggressively, compromising your ability to take advantage of new business opportunities and crippling prospects for future growth. In sailing terms, this is like lowering your sails until the boat is unable to move in the water.
Overreacting may help you survive, but it comes at the cost of diminishing any capacity to get to where you really want to go. Venture capitalist Frank Foster calls this approach the “small furry mammal mode” — designed to survive an ice age.

Arbitrary cuts to your revenue plan may be easier to model, but it’s a lazy substitute for navigating the route your startup will likely face.

Underreacting, …

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