Fred, over at A VC blog, writes about “scars from the last bubble.”
Oh, that matches my psychological profile very well. It might seem from reading my blog that I have non-ending confidence that the advertising market (and the pressure on VCs to keep pouring on the gas) will continue to grow robustly.
The truth, however, is quite different. I’m very scared of the future. I remember the day in February 2003 where I laid myself off. I remember how hard it was for Maryam to find a new job (she went unemployed for more than a year).
I remember when most of my friends were either totally unemployed, or working for no cash. Remember the guy who started Blogger at Google? He wasn’t getting paid. How about the couple who started Six Apart? Unemployed.
So, what have I learned?
Your revenue ramp better be going up faster than your cash on hand is going down. Seems simple to do, but this is really hard. Why? Well, here’s a good example. Which would you rather have? $100,000 today or a penny doubled every day for a month? Well, the penny doubled will be a lot more money. But, if your cash runs out before the 20th of the month you would have been better off taking the $100,000. Markets build by doubling. That’s why big companies miss important things when they are small (they only see things after the metaphorical 20th day when the numbers start to get really interesting). But keeping your company going until that metaphorical 20th day is a terrifying game of chicken between your cash going down and waiting for that doubling effect to really kick in (and that’s assuming you have a product or service that’ll keep doubling — like blogging turned out to be).
If you are seeing a doubling effect going on, measure its amplitude, and then spend accordingly. The blogging world was doubling every five months. In the first year I was blogging, 2000, that meant going from a couple hundred blogs that I could find to about 400. In 2001, it went to 800, then 1600 by the end of the year. In 2002 it went to thousands. In 2003 it went to hundreds of thousands. In 2004 it went to millions. The problem is that we spent our cash so we couldn’t survive past 2003. That either meant we should have gone back and gotten more money (not possible cause VCs weren’t investing in very many things back in 2002/03) or we should have slowed down our spending. If I was honest with you I should never have gotten hired at UserLand back then, I didn’t add enough value for the eight months of cash that were left. The doubling effect hadn’t yet kicked in.
Sometimes it’s good to take the $100,000 offer if it makes sense and live to see another day instead of holding out for a penny doubling. I don’t remember one of those on the table, but if I ever get a chance like that I’ll look back at this as advice.
At this point PodTech is gassing up. Why? We need some products and services, er, shows, that can get onto the doubling effect that video blogging is now seeing. But this scares the hell out of me. On the other hand, if we don’t spend the money, hire great people, we won’t be able to surf that doubling wave that we’re seeing. It means getting over your fears.
My mom dying was a HUGE part of this. She told me, by dying at too young an age, ”it’s time to surf and take some risks.” It isn’t lost on me that my new house is just a few miles from Mavericks, the place where some of the largest waves in the world hit land. Those waves have killed professional surfers. The surf report has come in and the waves are getting bigger. 
I don’t know that we can really avoid the next bust, though, but at least this time around I’m going in with my eyes open. If you were joining a startup today like I am, what would you be trying to do to live through the bad times?
