How To Be a Startup in a Down Economy

In fact, the best advice for would-be entrepreneurs may be to hold off until the economic climate takes a more positive turn.

"If you can wait, do. This is not a good time," Giga Information Group analyst Andrew Bartels told the E-Commerce Times. Venture capital is not readily available for new tech companies, he said, and competition is fierce. Also, there is little customer interest in and demand for new Web products.

Think Profits

For those who choose not to heed that warning, however, success is still possible. "There are a lot of hurdles to get over. That said, it's not impossible," Bartels said.

"If you're starting a company, it's a difficult time to raise capital, but companies can still do it," GartnerG2 analyst Jorge Lopez told the E-Commerce Times.

One thing that has changed dramatically for startups is the role of profit. Making money seemed to be a secondary concern of many startups in the 1990s, but in the current environment, it must be at the top of the list.

"Make sure that your business model at some point will yield profitable results. It seems like an obvious thing to say, but it wasn't so obvious two years ago," Lopez said.

Experience Counts

To succeed, startups must be very focused. "There are niches in the market. Find them, identify specific products and niches, and go after those. Don't try to be all things to all people," Bartels said.

But a great idea is no longer enough; a startup now must have experience as well. The management team has always been crucial for startups in any industry, but for a couple of years at the height of the Internet frenzy, that fundamental was ignored.

Now, after many well-publicized Internet flameouts, venture capitalists are getting back to basics. When it comes to management, they are looking for a much different executive profile than they were seeking three years ago.

"It used to feel like if you were over the age of 25, you were washed up. Now, people are looking for more experienced management, not just a pure visionary," Lopez said.

It is especially important for a startup to have a strong management team because it must show tangible results quickly.

"The cornerstone of any startup is people, and people who know how to make it happen. The problem with a startup is you have to know how to make it happen in a very short period of time," Lopez said.

Don't Be Lavish

Another key to success is controlling costs. The days of expensive lunches, lavish offices, sky-high salaries and huge parties are gone.

"It's important to focus on launching in the most cost-effective [way] possible," Bartels said. "There simply is not funding out there for any kind of extravagance." To that end, he said, startups should use off-the-shelf technology and perhaps even used equipment.

In addition to keeping costs under control, startups should make sure they focus on fundamentals. According to Bartels, Web startups should have an easy-to-navigate Web site, "rock solid" fulfillment, a telephone customer support system that is ready and tested, and a good strategy for marketing and building awareness of the company.

Small Is Good

Bartels cautioned that e-commerce companies in particular should concentrate on remaining small and filling a specific niche. "E-commerce is an environment where either the very big or the very small can succeed," he said.

Mid-size businesses have to have the same infrastructure and support as larger Web sites, according to Bartels, but they do not have the revenue and transaction volume to make their sites profitable.

"Niche companies can operate with a simpler Web site and manual fulfillment because they're not expected to handle 1,000 different customers. They would be happy with 100 customers a day," he noted.

A final bit of advice: If at first you don't succeed, quit. "The odds of a startup going from seed to IPO [initial public offering] are actually very, very low," Bartels said. "If you're going to fail, fail quickly and move on."