Coronavirus Forces Tech Startup Founders to Grow Up Fast

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From The Wall Street Journal:

The motto for Silicon Valley startups was often “Move fast and break things.” Now it’s “Cut fast and cut deep.”

Francis Davidson’s biggest challenge last year at his short-term apartment-rental website, Sonder Inc., was fending off a dozen new rivals fueled by a flood of investor capital. It wasn’t the worst problem a 27-year-old could have, as he ran a startup valued at $1 billion.

Today, the economic impact of coronavirus has cut April sales by at least half, while fixed costs remain. His job is negotiating lease concessions, refusing refund requests and axing a third of his staff. One of the hardest tasks was letting go a recruiter who last year lost his infant son.

“This is the most insane thing I’ve faced in my career,” Mr. Davidson said. “I started this company when I was 19. I’ve never seen a recession.”

. . . .

The coronavirus crash is a profound jolt for startup founders accustomed to a sea of cash from venture capitalists floating their entrepreneurial dreams. Investors have thrown money at all kinds of startups in recent years, stretching into categories well beyond technology, from real estate to meal prep to mattresses. Inexpensive money, fueled by a decade of low interest rates, paid the tab.

Conquering founders were still following a go-big-or-go-home approach—blitzscaling, as some called it—when the pandemic arrived. After years of blowing through cash, they have to grow up fast and must make tough decisions to conserve it.

That is bad news for the more than two million people employed by venture-capital-backed private companies in the U.S., as tallied by research firm PitchBook. And that figure doesn’t count millions of gig economy workers attached to large tech companies such as Uber Technologies Inc., who won’t be able to make up the lost work despite a boomlet in grocery and package delivery.

The pullback could be temporary. Deep as the economic contraction is, it’s possible the huge monetary and fiscal stimulus it unleashed could set up another boom once the virus threat fades and the world goes back to work. If Amazon deliveries and Zoom video conferencing are any indicator, technology may be more central to our post-pandemic lives than ever. Tech startups that survive would be poised to ride the next wave.

For many, getting to the other side means cutting payroll, slashing marketing budgets to $0, eliminating perks, asking vendors to extend payment terms and scratching for additional capital.

Link to the rest at The Wall Street Journal (PG apologizes for the paywall, but hasn’t figured out a way around it.)

PG notes that the book business has had quite a few tech startups of its own during the last twenty years. Amazon is one that PG doesn’t think will be going away, but he can’t say the same thing about others.

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