High-tech startups that have joined the ranks of companies fighting for money and survival say gearing up for the future is an unnerving task that relies on optimism — an outlook they’re not yet ready to adopt.
“We are being cautiously optimistic,” said Jamie Hewitt, president of software engineering firm intelliSolutions inc. “We can see signs of economic recovery and we’re hoping for the best while we’re planning for the worst.
“We’ve learned that we have to start thinking farther out than we have been, which means a lot of forecasting so we can plan for space and personnel,” she said. “We’re making sure we continue to plan ahead one to two years when we think about what relationships we want to have and what opportunities could come.”
Making decisions now means predicting the short-term future, and there’s never been a tougher time to do that. Even the founder of the rare thriving startup remains unconvinced that the economy is in full recovery.
“When you’re a startup, you don’t think about positioning yourself for the recovery,” said Mike Alfred, co-founder and CEO of BrightScope Inc. “You think about making the money you have go as far as it can, about keeping your staff and maintaining a laser-like focus on your strategy.”
It’s been a tough 18 months for startups. Venture capital is scarce and comes with strings; banks may be maintaining existing relationships, but cash is hard to come by. More than a few startups have fallen into bankruptcy.
Downsizing Out of La Jolla Digs
Ramon Toledo, CEO of Busca Corp., had the eerie experience of seeing all of his competition fall away. In 2008, Busca was one of a half dozen Mexican Internet startup companies. The last competitor, Veoh Networks Inc., filed for bankruptcy protection in February.
“We gave up our office in La Jolla. We have a cubicle now. We fired our CEO. It hurt,” Toledo said. “The other companies kept doing the same thing, spending the same, and they all went bankrupt. We’re the only one left.”
Busca saw its revenues grow from $165,000 to $500,000 between its start in 2008 and 2009, but in the same time frame the company laid off 20 percent of its staff.
The company now runs on long hours, hard work and finding the least expensive way to do things well. That means internships, programming done in Tijuana, Baja California, and no amenities.
“One bad decision, one bad investment, one bad first move and you die,” Toledo said.
Toledo launched BuscaTodo — a Mexico-focused search engine — and five other Web sites with a round of venture capital funding. The business has strategic partnerships with Microsoft and Playboy.
Many of the top executives at these companies don’t think the recovery is here yet, including Toledo.
“Watching the economists talk on CNBC reminds me of Mexican politicians on TV,” Toledo said. “They’re talking and you can tell they don’t believe what they’re saying.”
Scaling Back on Staff and Advertising
Startups find themselves caught between looking good on paper to attract funding and actually furthering their mission by hiring.
“A lot of companies look better because they aren’t hiring anybody,” Toledo said. “A lot of us are doing internships, and if we can hire it’s the best people only.”
BrightScope provides software and data that help independently analyze retirement plans such as 401(k)s and IRAs. The company’s most simplified analysis rates companies’ programs on a one-to-100 scale — something businesses, government and individuals have been thinking about a lot these days.
In the past year, the company hired 20 people, bringing its staff to 25, according to Alfred.
“Our products have been flying off the shelf,” he said. “We’ve sold it to Lockheed Martin, to large money managers and individual advisers.”
Alfred started his company at the end of 2008 with his brother, Ryan, and they’ve raised capital to expand. They received their first round of funding in January 2009, the same day the Dow Jones industrial average dropped to the lowest it has ever been. The second round of funding came later that spring.
“BrightScope is unique enough that I can monetize the idea of rating retirement account programs, especially now that the pension plan has all but disappeared,” Mike Alfred said.
Advancing Research
When spending is down and hiring stops, some high-tech startups are still investing in research, and then spending to protect the ideas they develop, whether they can take the idea from concept to a product or not.
Steven Wells, president of entracity inc., said his Carlsbad-based company is doing that.
“We’ve got 92 patents pending,” Wells said.
Wells’ core business is content and media aggregation, another business that awaits the bloom of the long-dormant advertising dollars. A 20-year veteran of Web innovation companies, Wells has been able to bring in contracts for Web 2.0 work while he waits for the recovery.
“Everything is hovering,” he said. “We won’t do any promotions as we’ve done in the past until it starts to look like advertising picks up, and we don’t see that coming just yet. We’ve been taking contract work, too.”