Key to profit: Cutting expenses
Startup companies need to memorize a set of rules to survive the credit squeeze and business downturn, a Spokane investment banker said Friday: focus on making money, become profitable quickly and avoid unneeded spending.
Kevin Cable, executive vice president of Cascadia Capital LLC, told a gathering at the Spokane Club that successful startups will “spend every dollar as though it’s (their) last.”
Early-stage companies in the current economy are in serious trouble if they need investors or survive by going deeper into debt, he said. Cable’s remarks highlighted the first monthly meeting in the Spokane Discovery Series, presented by the Technology Alliance, a Washington state nonprofit group.
A key to becoming and remaining profitable involves cutting expenses to the bone, noted Cable, who mostly works with software companies at Cascadia. A slide he showed illustrated a key rule: “cash is always king, run lean.”
A fresh example from Seattle is Web-based real estate company Zillow, which has plenty of money in the bank but still is cutting costs to ensure it remains cash-flow positive, Cable said. Zillow just announced it is slashing 27 percent of its work force, or 40 workers.
The guidelines and survival rules apply to any business that is not profitable, or is barely out of the red. “This applies to all companies, not just tech,” Cable said.
Cable sees some tech companies holding on and even growing, despite the bleak economic picture. That’s because innovation is still a major driver as companies search for ways to become more efficient, he said.
Tech firms offering improvements in business services will see room for growth. Companies involved in tech infrastructure, such as IT equipment, won’t see much gain, according to Cable.
In his view, the pain won’t go away quickly.
“This is going to be a very long recovery,” said Cable; “2009 will be a really hard year.”
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