Startups: More Nimble in Job Cuts Too

As Aaron and Henry discussed this morning, public companies are laying off employees across the economy and the Valley is no exception. TechCrunch counts more than 40,000 tech jobs lost, much in the last few weeks.

The bulk of that comes from sizable cuts from Hewlett Packard thanks to its EDS acquisition and bloated Web names Yahoo and eBay. I suspect a wave of mid-sized software companies to follow, and, yes, that includes software-as-a-service. The pay-as-you-go style of renting hosted software online is hyped to be recession proof, but many of the companies in the sector have comparatively weak balance sheets for the software and services world. If customers scale down these on-the-fly software "seats"-- or just cancel them as employees are cut-- SaaS names will have to cut expenses to keep Wall Street happy.

But as swift as cuts seem to be coming now, most public companies cutting jobs are really still dragging their feet. Wall Street has been asking these companies to scale down for quarters, and they may not have cut enough.

Private companies in the Valley, on the other hand, have wielded a surprisingly swift scalpel this time around. For a few weeks now, venture firms have been unilaterally advising startups to cut their burn rate, and switch from growth-at-all-costs to revenue-and-profits-stat. And dozens of startups have listened and acted quickly. Another one joined the ranks today: the techy online video network Revision3, slimmed down killing a few shows, even the syndication of one of its big names self-touted Wine celebrity Gary Vaynerchuk of Wine Library TV.

In the last few weeks, I've talked to scores of the Valley's entrepreneurs, investors, and boutique bankers and all of them are getting practical fast. Plans of action are ranging from "don't do anything until January and then asses new cuts or investments" to "cut now, and learn to sell something." Everyone is expecting "Series B" rounds of venture capital to be scarce. Companies that never wanted to sell before are evaluating offers or downright shopping themselves around. And even those hiring are tightening belts elsewhere, unless they have three or more years of funding in the bank. Some of the super-well capitalized -- think Facebook, LinkedIn or Slide-- may take advantage of the downturn to do some acquisitions. But it'll hardly be a spending spree. I expect any deals will be for stock or on the cheap. And any deals will have to be immediately accretive to the bottom line, putting a bigger crimp on money-losing startups with a promising product looking for a safe landing.

Why is it surprising that startups are getting so practical so fast? For one thing, entrepreneurs are optimists by nature. Only the history books and a chart of the Nasdaq would tell you that the great dot com bubble burst in March 2000. In the Valley, the good times kept rolling for quite some time, even as investors in tech stocks were losing money by the day. Venture capital totals and M&A deals ticked up for the remaining three quarters of the year. Even in 2001, tech magazine headlines heralded a new boom in biotech or nanotech to replace the Web. It wasn't until Sept. 11, 2001, that everyone finally got that the party was over-- and just what that meant. Specifically, it meant nuclear winter. Hundreds of thousands of jobs were lost.

It's also surprising that it sunk in so fast this time, because many of the companies I'm talking to aren't seeing revenues hit yet and the cause of this downturn isn't overspending in the Valley. My take is its a combo of remembering what happened to startups that didn't cut quickly enough eight years ago, and mass uncertainly about what all the ripple effects will be this time around. After all, the devil you don't know is always much scarier.