Economic crisis shifts focus to business model

Even the most deep-pocketed VCs aren’t immune to the current economic woes. Earlier this month and again at a recent event hosted by Venturebeat, VCs are advising startups to buckle down, make drastic cuts to survive in this crunch time.

Kara Swisher from All Things Digital called the VCs on their hypocrisy as Venturebeat reported,

… it’s hypocritical for VCs, who previously encouraged growth and spending, to now push for cutbacks. “It’s like drug dealers saying drugs aren’t good for you,” she said.

The question begs to be asked and answered, why does it take an economic crisis to be smart about your business operations? Especially, when your startup isn’t making any money and shows no sign of doing so  in the foreseeable future? The VC advisements sound like a conversation between rich kids and their  indulgent parents who at one time bankrolled their hobby, but are now suddenly telling their precious progenies that it’s time to grow up and fend for yourself.

Max Levchin from Slide hit the nail right on the head,

…Levchin also took up the theme, comparing layoffs to cutting off a finger — they might be needed, but they will make you less effective. “A much better way to survive the downturn is to make more money,” he said.

One can’t help but wonder that if he’s having to spell this out, does it mean that making more money (or any money) is a radical concept for VC-funded startups? Being stringent is a reality for the ‘poor’ ie. self-funded ventures. Naturally, they have to be prudent all the time because it’s their own money on the line. Apparently, that’s not the case for the VC-funded startups?!

Call me crazy, but since when did having a revenue-based business model become a nice-to-have item on a business checklist? Isn’t any legitimate business enterprise supposed to generate value and wealth for its stakeholders?  

Whom are we kidding? If a venture has no realistic plan for making money (ad-revenue? get bought by Google or Microsoft? really, are you serious?) the founders either have a very expensive hobby or they are running a not-for-profit business. It really is that simple.