You can still hear the wince in Bonnie Crater’s voice when she talks about Zelerate, the ecommerce software company she ran between 1999 and 2001.
During the dotcom boom, the company raised about $15 million and burned through most of that money on growth, fully expecting that it would easily raise another round.
But then the bubble popped.
“I’d hired these 100 people, and then I had to fire them all,” Crater tells Business Insider. “It was devasting. I felt like I ruined their lives.”
The company officially shut down not long afterwards.
Crater says it took her years to come to terms with what had happened and her role in it. She worked at several companies, including Salesforce, before she decided to plunge back into the startup world by founding a customer management company, Full Circle Insights, in 2011.
But when Crater looks at today’s tech climate, she says she’s starting to see signs of the next pop.
She’s particularly worried about some of the sky-high valuations and the subsequent pressure for rocketship growth. For a recent example, consider Zenefits, the troubled startup that has attributed some of its recent issues to cut corners and an unrealistic thirst for expansion.
As someone who did it wrong the first time, here’s her biggest advice for today’s startups:
1. Really understand the numbers and do not run out of money
“Whatever you do, don’t run out of money,” she says. “I know that sounds very simple, but it’s a common issue.”
For an idea of how widespread that particular problem is, check out this recent chart from CB Insights:
— Chris Maddern (@chrismaddern) March 6, 2016
2. Taking too much money is bad
“When startups raise a lot of money, they often waste a lot of money,” she said. “Taking too much money is bad.”
The unicorn companies make her very nervous.
“When young people come to me and my company and say, ‘Wow, we just raised $50 million!’ I’ll be like, ‘Yup, beginning of the end,'” she says. “Because investors are expecting a 10x return on that valuation. So say a company’s valuation is $100 million. You have to be a billion-dollar company to be successful! And that’s really, really hard.”
3. Be intentional about your company culture
Turnover is incredibly expensive, Crater says.
Finding candidates and onboarding them takes time, effort, and money. If a startup isn’t clear from the get-go on its culture and what kind of people will flourish while working there, it is more likely to have a lot of employee churn.
Although she thinks that company culture is incredibly important, she doesn’t think that expensive perks are necessary. Perks are nice, but most people just want to work somewhere where they feel like their contribution is valued.
“We have a ping-pong table and happy hour and free lunches once a week, but that’s not what the company is about,” she says. “We want people passionate about helping marketers get better at their craft.”
You need to find people who believe in the mission of your company.
4. Make sure you have an annual plan that everyone understands
“Everyone should understand what your values are and what you stand for as a group,” she says.
Because Crater and several other employees are Salesforce vets, they’ve adopted Marc Benioff’s “V2MOM” model at Full Circle. The acronym stands for vision, values, methods, obstacles, and methods. There’s a question tied to each — for example vision: what do you want to do? and values: what’s most important about that vision? — and answering the questions tied to each of those keywords has driven Craters new company ever since.
Employees should know the company’s big picture goals in order to best manage their time and priorities and stay aligned.
“Everybody should be working on the same page,” she said.
5. Hire your sales team at the right time
“A big mistake I’ve seen people make is hiring their VP of sales too soon,” Crater says. “Before they’ve fully figured out their product-market fit. And then that person is wasted.”
Startups who hire a senior exec before they’ve concretely answered questions like ‘who needs this product and why?’ will ultimately end up misspending a lot of cash.Read More