In the current global recession, risk capital has suddenly become scarce. Working with start-up companies in Asia in the last three months, I have seen boards adopting a mix of the remedies suggested below. Hopefully, they can be useful for others as well.

Ten ways to survive the crunch:

1. Keep a buffer of three to six months of net cash burn by continuously adjusting your burn rate: The difficulty trying to adjust the net cash burn is when to reduce it and by how much. We suggest simply agreeing on a buffer in terms of time until cash runs out. It is easy for both management and the board to relate to this number. We have asked CEOs to adjust burn at the end of every month, so as to always keep enough cash and short-term receivables to last at least three more months. In that way, there is no need to keep discussing specifics, it is up to management to cut spending and staff and the board can focus on the revenue side.

2. Be transparent with your team: We ask CEOs to be completely open about the state of their companies in weekly, all-hands meetings. Start-up teams are usually small and closely nit; facts are far better than rumors in difficult times. Since many companies give stock options to employees, it is only fair to let them be part of the hard decisions that have to be made. And, staff members that are most likely to appreciate this openness are also the ones you are most interested in keeping for the long term.

3. Ask everyone to take a progressive pay cut: Higher paid staff can usually take a higher pay cut, but be sure to understand the financial situation of each member on your team. If everyone agrees to a substantial cut for e.g. 6 months, we believe the team has a good chance of remaining motivated and productive. In particular, we even see some founders take no salary for an extended period of time, sending a strong signal of commitment.

4. Let go of staff, but offer them to hang around: Keeping enough cash for survival often means letting good people go. Be creative and offer them to stay to e.g. consult or do other business from an environment they know and enjoy. Do not charge them anything for this. Given that this works out, it can also boost morale of the employees still on your payroll and the team remains intact. To make up for reduced staff, use online outsourcing sites such as www.elance.com or www.99designs.com to provide cheap services at competitive rates.

5. Free up office space and rent it out: Letting people go and compressing the space you use, can free up significant space. Perhaps you planned on growing further and already use more than you need. Get another company on your premises, ideally a possible partner or customer or one that will add creativity and fun.

6. Make board and advisory board members join the sales team: This is the time to use the network and experience of your extended team. Many board members actually want to get their hands dirty, but are usually held back by management. This is the time to let them loose and let them sell for you.

7. Revamp your web site: The last thing where would like to cut spending, is your website. A strong, online presence with easy access for potential customers to contact you or even buy your products, is nothing but the most cost-effective marketing tool around. Check the cost of customer acquisition through Internet marketing as compared to traditional channels and adopt the best price/performance mix.

8. Invite your closest competitor for coffee, it’s time to talk: Your competitor might be your best future partner. Given mutual respect, a merger might be the best option for both of you if it gives easier market access and reduces costs.

9. Monetize your existing customer base in new ways: Often, your customer base is a demographic subset that is interesting for other products or services than your own. As long as your customers find the new offerings relevant, it will be well received also by them.

10. Barter equity for marketing: A recent trend in Asia is for some media companies to exchange advertising against an equity stake. In the absence of cash, and with companies spending dramatically less on marketing, this is a wonderful way to get relatively high media visibility with only a limited dilution for your existing shareholders.

At last, keep the option of hibernation open if cash simply runs out. There is nothing better than putting your company on hold for a limited period and keep your main clients somewhat happy. Former employees might be willing to work part-time and on a project basis. As soon as your target markets recover, you can hire back employees and gradually start spending again as investments and revenues find their way back to support your dream.

Article photo courtesy of Onohoku

William Klippgen is co-founder and executive director of the Singapore seed investment fund BAF Spectrum Pte Ltd. He was the co-founder of European comparison shopping site Kelkoo.com and advises and invests in start-up companies in Asia, Australia, and Europe. He can be contacted at william.klippgen@bafspectrum.com

Lately, the world has been hit by global financial crisis that led to the collapse of an investment bank Lehman Brothers, the acquisition of Merrill Lynch by Bank of America and many bailouts including AIG and Northern Rock by the US and UK governments. The triggering of this crisis began from the subprime mortgage problem that surfaced during early 2007. What’s the impact for entrepreneurs or small medium enterprises business owners given that there is a lack of trust among banks to lend to each other and upcoming recessions hitting most countries? It may be good to take a step back and put some thoughts on what the entrepreneur will navigate through this difficult period:

• Bootstrapping and not Fundraising as growth strategy during the Credit Crunch: In essence, the global financial crisis has left a deep impact to the markets. The stock prices of many companies have dropped so much and there is contracted liquidity in the markets now. For the next 12 to 15 months, any new enterprises in any industry will face a lot of challenges in fundraising. In recent seminars that I have given to students from NTU and INSEAD, I have advocated the contrarian approach to what every textbook in entrepreneurship will tell you: raise funds to expand your business. In such bad times, the entrepreneurs need to adopt the bootstrapping approach for their enterprises. The bootstrapping approach is simple: control cashflows, ensure that profit is greater than loss, and reinvest the profit into growing the business in an organic manner. Micro-financing funds from the government might be helpful to those who want to be in the technology industry.
• Entrepreneurs benefit from bad times and harvest during good times: I won’t advocate to anyone to buy any stocks or acquire assets now until the current crisis situation is stabilized by the governments. In the short term, the interest rates will be cut to encourage borrowing from the businesses to energize the economy but inflation will creep in as things go along. Of course, this is the best time to research on companies to invest because you will never get a price less than the current price. In simple words, buy low now and sell high later.
• Realignment of the wages and expectations in the marketplace: With many job cuts from the banking industry, there will be a major re-alignment of the wages and expectations of talent in the market place. This is also a good time for entrepreneurs to scout and hire talent because there are lots of talent hired by Wall Street losing jobs. Banking jobs used to be the envy for many but now many young undergraduates who are thinking of joining investment banks in Singapore can kiss their dream goodbye.

It is an interesting time for investors and entrepreneurs because it present not just problems, but also opportunities. You find opportunity in the midst of adversity.