A fine line between panic, swift action

Hey boss, don't panic. Entrepreneurs and investors are scrambling to cope with the changing economy. Venture capitalists, led by the legendary Silicon Valley firm Sequoia Capital, have been sharing advice with companies they back, hoping the executives in charge will be able to quickly adjust strategies and spending. David Aronoff, a general partner at Flybridge Capital Partners in Boston, joined the chorus recently.

There is a fine line between swift but deliberate action, and panic. Without the former, most certainly the latter will occur. And this is exactly what we are seeing unfold in front of our eyes, as the global financial crisis drives the equivalent of tectonic shifts in matters of minutes. I wouldn't be too surprised to see a giant fissure appear on Wall Street, swallow the entirety of the US financial industry, and then extend throughout the now-obviously interlinked exchanges, dragging them all down to the netherworld, never to be seen again.

Wikipedia credits Arthur C. Clarke saying Douglas Adams' use of "don't panic," in The Hitchhiker's Guide to the Galaxy, was "perhaps the best advice that could be given to humanity." Amen.

What have I been telling my CEOs? The three key themes have been:

1.Stay focused and don't react in a knee-jerk way (like the Fed seems to be doing). Your employees are watching and need to see calm and confidence. Your customers are watching too. And your competitors.

2.New plans are needed as soon as possible - in days and not weeks. Your number one priority is extending your runway as long as possible while running your business. Period. If times don't turn out to be as bad as you're planning, you won't be penalized. If they are, you'll have no time to react (a key lesson from the bubble).

3. This is no time for a solo. It's comforting to know you are not alone - and there can be real benefit from commiseration around tactics and best practices. At Flybridge, I believe we have done a very good job of getting our portfolio CEOs together periodically, and these are times to leverage that goodwill built over the years.
www.geekvc.com

Triage time. Furqan Nazeeri, a serial entrepreneur who runs an Arlington start-up focused on environmental issues, posited that there are three kinds of companies in times like these.

Venture capitalists are going through their portfolios and categorizing their investments into three buckets:

Expectant: So badly wounded that it is not worth expending resources to attempt to save them. On the battlefield, these casualties get morphine.

Priority: Badly injured, but rapid and focused attention can save them. These casualties get almost all of the scarce time and medical resources.

Routine: Walking wounded. These casualties are lightly wounded and there is little cost in delaying treatment until after the battle is over. On the battlefield, these casualties get left alone in a position of cover.
www.altgate.com

Strings attached. Does everyone suddenly become more mercenary when times get tight? Boston investor Bijan Sabet of Spark Capital reflected on what happened during the last downturn, and offered a recommendation.

When I moved to Boston in 2001 it was a tough market and only got worse in 2002 in many ways. Then in 2005, Boston/Cambridge started coming back with tons of great startups. And we have seen big companies like Google and Microsoft investing big-time here in Beantown. And now we are back in a down market. The cycle continues.

But the thing I can't stand, and it seems particularly true of late, is how some people turn inward or become really unwilling to give a helping hand when times are tough.

Suddenly calls go unanswered. Or patience grows thin. Sympathy goes away. . . . Or some folks will only make introductions if you promise them something in return. Or people start asking (demanding?) compensation for something as innocent as advice.

I noticed this behavior with some folks in the last crash and I'm starting to see it again.

So I just want to remind everyone. We gotta help each other out. It's not just about personal karma but it's important for the entire startup and business ecosystem.

And it's especially true in times like this.
bijansabet.com

Perennially optimistic. Entrepreneur Doug Levin, who recently departed the CEO's chair at Waltham start-up Black Duck Software, suggested that good ideas can still gain momentum, even amidst market chaos.

Beyond plummeting gas prices, what's not being reported about the current economic situation is that this is the best time to start a business. There's lots of money available for capital-efficient companies - those who prove the market and the business model - seeking Series A funding. I'm so confident about this that I've founded Freelodr LLC, a consumer Internet company. (I will talk about it more when I'm ready and it's ready.)

America remains the land of opportunity for those with big ideas and sound business plans. Even in the worst of times, there's always room for a better mousetrap.
www.newsoftwarepathways.com/blog

Scott Kirsner can be reached at kirsner@pobox.com.