THE BLOG

5 Best Practices for Tech Bubble Preparedness

06/24/2014 06:09 pm ET | Updated Aug 24, 2014

Life is good for today's tech entrepreneurs. Hot startups are finding an abundance of interest, opportunity, optimism and most significantly a healthy flow of public and private investment capital available to fund their vision. But a sense that life has gotten a little too good for tech companies has made skeptics out of some industry analysts who compare today's environment to the dot-com bubble of the early 2000s and predict an eminent bust.

Time will tell whether or not these predictions of a renewed bust become reality. And while many may disagree with the validity of such ominous predictions, we can all agree that it is prudent to prepare our businesses to handle and thrive in any number of scenarios.

As you think about how to maintain and grow your business in both good times and bad, think of our best practice guide below as a form of "tech bubble preparedness kit."

1. Be selective with investors.

Today, you can be much more selective in choosing whom you raise capital from because investment capital is readily available. Use this to your advantage and be selective. Whomever you take an investment from will become your business partner for many years to come, so be certain an investor is a good fit for your business. Check references to validate that it's a right fit both ways, and ask questions up front, such as:

• Is this investor in it for the long haul? Seek out partners that are prepared to weather economic downturns with you and your company and are able to provide additional capital to your business if other investors lose interest.

• How far along is the fund they are investing from? Funds that are near the end of the fund life may put pressure on you for liquidity in order to return capital to their investors, even at a time when such liquidity is not optimal for the business or other shareholders.

• Do they understand your industry enough to provide strategic guidance if they join your board? Strong strategy is often a saving grace in weathering economic swings.

• Can they connect you to new partners, future employees or, best of all, prospective customers? Lead channels are invaluable in good times and bad.

2. Be selective with partners.

Partnerships are critical for tech companies in today's age of open APIs and high customer demand for integrated applications instead of siloed systems. Companies tend to look to form partnerships when times are good, but make sure to be as selective with partners as you are with investors.

First consider whether your customers will find value in a potential partner's solution, and vice-versa. Partner with companies that have a similar customer demographic; these partners can open both new opportunities to grow your customer base as well as new opportunities to sell more products into your existing customer base. Partners that both add new prospects and increase product sales to current customers are invaluable regardless of the economic environment.

Second, choose partners with sustainable business models. You don't want your partners disappearing if tough times hit. Make sure they're as prepared as you are to power through a potential downturn.

3. Plan, analyze, repeat.

You can't control everything about your business. There are too many volatile internal and external factors that make the future unpredictable. What you can do is plan ahead for different future "what if" scenarios. The more volatility there is in and around your business, the more frequently you should re-plan the future.

The most effective businesses create an actionable, efficient process for financial and operational planning and analysis throughout the year. Such a process includes building a variety of scenarios to anticipate potential upturns and downturns in your business, which will allow your team to react quickly should one of those swings occur. Equally important is a process that allows you to update plans and forecasts frequently over the course of the year. This will ensure that your team is always working toward goals that are consistent with the recent realities of your business.

Good financial and operational plans are invaluable in any environment. They force you to truly understand the levers that you have to control your business, either to drive more sales in good times or to control costs in tough times. Either way, your model should drive to a cash flow statement that provides a clear view of the cash needs of your business. The best business leaders not only know when they need to raise additional capital but also when they have the runway to do so on their own terms.

4. Focus on your customers.

Customers are your lifeblood. Treat them well no matter what. Make sure that they understand that your sole focus as a business is to ensure their success with your products or services. Every employee in your company should demonstrate this attitude at every customer touch point, every single day. Why? Because happy customers will help you succeed regardless of the business climate. They will become repeat customers. They will be great references and speak to press and analysts on your behalf. They will refer business to you. In short, happy customers will shorten your sales cycle, increase your sales velocity and lower your acquisition costs - all of which will help your business thrive in any economic climate.

5. Trust your instinct, validate with data and be prepared to change course.

When you started your business, you had a vision for how it would grow and succeed. Trust that vision, and don't be easily swayed from it. Many people will tell you why they believe you will fail. Listen carefully to this input and consider it for its merits, but don't let emotion alone sway you from your course. You've acquired an abundance of data that can help you validate theories and suggestions and help you understand the real drivers of your business model. Instrument your business as early as possible (now), and analyze it constantly. When the environment around you changes, use analytics to understand the implications of these changes. Ultimately, be willing to change course, to revise your vision based on analytical evaluation and to take advantage of the changing conditions around you.