David Selinger

Anticipating that a financial crisis like the one we’re currently experiencing wasn’t far away, I’ve run my company, richrelevance, on a zero-fat budget, raising small rounds of capital to ensure our team built the discipline to operate with small budgets. Yet, anticipation of the downturn does not make me immune to the shift. External risks in every business have changed. None of us will go through the next 18 months without significant impact.

But many entrepreneurs who saw the now-famous “Sequoia deck” unfortunately took its conclusions to be a tenet of truth and acted on it — perhaps too hastily. The folks at Sequoia are smart, but they aren’t necessarily smarter than you or me at running our businesses. This is the crux of the issue: While this market shift is, in fact, a 5- or 6-sigma event, what we do with that information is still within our domain.

Reacting blindly to a situation is wrong — being reactive is bad for your business. There’s a process to responding to urgent situations, much like triage in a hospital, and by understanding, analyzing, acting and repeating we can surmount these challenges. Now is a unique time when you can deepen customer relationships by advising them, seeking input, sharing ideas, etc. Below are four steps to responding the current economic situation without being reactive.

1. Identify and Understand
Acting on bad information is worse than not acting at all. My gut reaction to this shift was, “I’m sure glad we build enterprise software and that I’m not a social network,” but this thought is wrong and fraught with (incorrect) assumptions. While not all social networks will survive, their inherent value has not disappeared. And, while the innate value of the applications we’re building has not deteriorated, the amount (and way) we are paid for these services may change.

To protect our businesses, we need to keep a close eye on market dynamics. Talk to customers, partners, and vendors. Find out what they’re thinking and seek their input — this is a unique time to establish new dialogues and chart the course for deeper, more beneficial relationships.

Read. Gather data. Then, go sleep on it.

2. Analyze Risks
The biggest assumption from the Sequoia presentation is that the downturn is so large that it will affect us all equally and uniformly. This is patently false. As entrepreneurs, we believe the opportunity in our market is so great that it outweighs the risk. Sit at a whiteboard with your management team and consider the new risks in the equation. Break these down into two groups: risks I can control (internal) and risks I can’t control (externalities). Much like a triage leader, identify the severity and urgency of each risk in how it affects the bottom line, how much capital you have on hand and how much you can absorb long term. The key is to be honest with yourself.

3. Act
First, stop any bleeding. If your burn rate outpaces revenue, cut — dramatically. If you have contracts that put you underwater, address those. Next, address internal risks. For example, if you finish X product line you may increase revenue with existing customers. Yet if X product requires long-term R&D and there’s not enough cash to get you there, put the project on the chopping block. Finally, proactively shore your business up against externalities — i.e., “What happens if my customers don’t pay on time?” Keep in mind: The stakes are higher than ever. Use your advantage as a startup to do more things better and faster than the competition.

4. Close The Loop
You’re not done. Iterate. Constantly communicate with your team about how you’re executing against goals. Stay engaged with customers. Re-engage the whiteboard regularly.

None of these principles are new. This is how we should be running business regardless of the economy. The climate may have changed, but the rules of good business are still the same. Failure is still not an option. Freaking out is not either.

Abigail Johnson

Over the last few weeks, we have all heard admonitions to startups (and all companies) to tighten their belts, be realistic about their businesses and hunker down for the long term. This is certainly good advice (in this market, and probably most of the time). But a few other things should also be stressed: He who wins in a down market wins. Some people will cede ground. Be prepared, tactically and strategically, to grab it. Because major changes are happening in the market today, truly transformative companies will be able to gain a significant foothold.

In any market, but especially in a tough market like this one, communicating aggressively is key. You want to keep all of your constituencies informed about what’s happening and how you are progressing. I know that you are probably wondering how you can both extend your runway and maintain or even increase your communications. This is not an easy formula, and every company needs to treat the question differently. However, here are a few guidelines:

1.) Be clear and articulate about your differentiation and benefits — in the near term and the long term;
This means focus on quality not quantity. Spend time figuring out your messages and reinforce them in every medium. Press on the competition; help people understand why you are better.

2.) Focus on leadership. If you can be a thought leader, you will define your market rather than following others into the market. If you can be a product leader, that’s even better.

3) Speak often to your key markets and influencers.

4) Find real reasons to talk with your constituencies. Provide information about your company, its status, and products. Educate about the market about issues and opportunities.

5) Be specific and real. Help your customers and their influencers understand how you are better and the benefits you bring. Avoid hype — we rarely believe in hype or gimmicks, and they tend to backfire. Instead,  be direct and clear and say things like they really are. In a market like this, trust is very important. Give very specific examples of how you are better and bring benefits: use customers, examples, cases — not just theory.

6) Use the transparency of communications today to make sure a well-crafted set of messages gets to all of your audiences. We are blessed to live in an age where communicating is very easy. Virtually anyone can read/see whatever you communicate. This means that you need to be consistent through all communications; your web site, press releases, trade shows, company presentations, and internal communications should all reinforce the same core positioning.

7) Don’t stop talking! In case you didn’t get the point, find a way to keep communicating with your audiences.

Abigail Johnson is president of Roeder-Johnson Corp., a public relations and strategic communications firm in the Silicon Valley. Having helped launched nearly 100 companies, Johnson has more than 20 years of experience providing executive counsel to technology and consumer companies on communications issues.

I’ve read a lot here about how to hack a funding term sheet, or how to navigate the confusing terms and conditions in the legal contracts startup founders must sign. But what about rent? It’s probably one of your biggest operating costs, and in the current spirit of cost-cutting, there are several ways to squeeze cash out of your commercial real estate agreement, too. I started Rofo to help entrepreneurs do this, but I’ve shared my top “lease agreement hacks” here. They will save you plenty of headaches and money — and possibly even help you generate new revenue streams for your startup.1. Don’t pay for space you can’t use. All square feet are not created equal. Have the landlord pay for a “space plan” to determine your “load factor.” (Also sometimes referred to as a “loss factor.”) This is the ratio between the non-usable and usable square feet that your rent will cover. Examples of non-usable square feet would be building common areas, such as corridors, or a lobby. Typically, office space load factors are in the range of 20 percent to 30 percent, meaning for 1,000 square feet of usable office space, you might pay for 1,200 square feet. Landlords like high load factors because they pad the bottom line. In a market like this, however, they need to secure tenants, so you have more leverage than normal. Negotiate the load factor down to at least 15 percent.

2. Beware of free rent. Structure the rent so that you phase into the space. Pay for half the space during the first six months of the lease, the full space at seven months. If you get “three months free,” be sure the landlord has not extended your lease term on the back end, to 39 months from 36, a common tactic.

3. Avoid standard improvement allowances. If the rental rate being offered includes a standard improvement allowance and you do not want or need to make improvements, then amortize this allowance out of your rent.

4. Cap operating expenses. In most office buildings, operating expenses are included in your rent. They increase yearly, but you can put a cap on operating expense increases. A 5 percent cap is reasonable. It protects you from spikes in utility costs or increased property taxes if the building is reassessed. Also, retain the right to audit operating expenses.

5. Negotiate your renewal option in advance. Landlords like to include a commitment to renew up to one year before your lease is up. This forces you to address your real estate needs long before you’re ready. Negotiate the renewal down to six months by agreeing to a renewal rate equal to fair market value. Renewal rates are re-negotiated at re-signing anyway. The important thing is to move back the option deadline.

6. Negotiate holdover rent penalty in advance. Holdover rent occurs after your lease term has expired and, for whatever reason, you’re unable to vacate the space on time (usually when your pending move is delayed). Landlords will want double rent as a holdover. Negotiate this down to 125 percent of current rent.

7. Consider a buildout. If a landlord offers an allowance to build out a space to your specs, take the time to get a construction bid. Make the landlord pay for the estimate. Be sure the allowance can be used for architects, construction management, your moving expenses and data wiring. Most landlords draw the line at furniture and fixtures, but ask for it.

8. Demand right to sublease. Get it in the term sheet that you can sublease your space to anyone you wish for any amount of rent, subject to an approved use. Also, be certain that the landlord cannot impose any fees to your sublease. A common fee to avoid is a “document review fee” to cover the landlord’s attorney bill. Also, insist that the landlord turnaround sublease approvals quickly, within three to five business days. The last thing you want is to lose a subtenant to administrative delays.

Alan Bernier is Co-Founder and CEO of www.Rofo.com, a real estate resource for startups.

Paul Polak, a Pop!Tech 2008 featured speaker, has been starting businesses since he was 15. He’s now 75, and says he has succeeded — and failed — with more ventures than he can count. Polak’s first was a strawberry distribution operation in his hometown of Millgrove, Ontario. Later Polak prospected in real estate and oil and made millions. In 1981, he invested the proceeds into a nonprofit incubator of sorts called International Development Enterprises.

Most of the ventures Polak has debuted out of IDE have one thing in common: They specialize in delivering low-cost engineering solutions to “micro-businesses” in the developing world. The most famous is the $25 treadle pump: a simple, foot-powered irrigation system that millions of farmers in India, Cambodia, Ethiopia, and Nepal have used to bring themselves out of poverty. Irrigation allows farmers to grow crops irrespective of season. When they can diversify, they are no longer subsistence farmers. They become businesspeople.

Since his customers are the poor, Polak is called a social entrepreneur. But he’s hardly the sort to sacrifice profits for “do-gooder-ism.” In fact, Polak won’t invest in a venture that can’t pay for itself in a year. One year! It’s a high bar by venture capital standards, but Polak says a one-year break-even is one of his top three “don’t bother” rules, along with a market opportunity of at least 1 million customers and having conversations with at least 25 of those prospective buyers.

Polak knows a lot about building successful businesses in dire economic circumstances. It’s a skill set in high demand these days, and Polak often lectures at Harvard’s and Stanford’s business schools. In addition to his three “don’t bother” rules, Polak points the way to success using 12 Steps to Practical Problem Solving, “because business is problem-solving…no matter what market you’re in.”

This week Polak shared his ideas with hundreds of business elites at Pop!Tech. He also sat down with Found|READ to flesh-out his wisdom, tailored to startups. It’s below.

The 12 Steps to Practical Problem Solving:
1. Go where the action is. “Spend significant time with your customers. This is how you learn what they need,” he says. Not hours, days. Polak lived with his farmers for 6 months.
2. Interview at least 100 customers a year. You do it. Not an employee. Listen to what they have to say. “Too many entrepreneurs build the product they want to build — not the one that’s needed.”
3. Context matters. If your solution isn’t right for the context, for example, if it costs too much for the customers you’re trying to serve, you won’t succeed.
4. Think big. Act big.
5. Think like a child.
6. See and do the obvious. Others won’t, which is opportunity for you.
7. Leverage precedents. If somebody has already invented it, don’t do it again.
8. Scale. Your business must have potential to scale. Remember, your market must include at least 1 million customers.
9. Design to specific cost and price targets. Not the other way around. (Celeste: it means — Do not price to your design, design to the price you need to hit to make your product appropriate to your customer.).
10. Follow practical three-year plans. Two years is too short. Ten is too long.
11. Visit your customers again. And again. “Any successful business in this country is based on talking to your customers all the time. A good CEO spends half his time ‘in the field.’”
12. Stay positive. Don’t be distracted by what other people think.

You can read more about these rules in Polak’s book, “Out of Poverty: What Works When Traditional Approaches Fail.”

Late last week, my partners and I here at Polaris Ventures hosted a summit for all of our portfolio companies in and around the online advertising sector. In addition to the some 20 portfolio executives that attended, we brought in a handful of senior industry execs to share their experiences, among them Joe Gillespie, EVP of CBS Interactive CBS/CNET; Michael Barrett, formerly of Fox Interactive Media; Carolyn Everson, EVP of MTV Networks; Scott Kurnit, founder of About.com; Stewart Bogarty EVP at Universal McCann; and Polaris entrepreneur-in-residence Brian Grey, who was formerly with Fox Sports Interactive.

Although our meeting had been planned several months ago, the fact that it came on the heels of some highly publicized admonishments by certain VCs to the CEOs of their portfolio companies to slash costs in order to survive the financial crisis provided an interesting backdrop. In particular, attendees of our summit overwhelmingly agreed that expense cutbacks are only half of the story when it comes to surviving the ad recession — the other half is figuring out how to build revenues. In no particular order, here are some tips that came out of the meeting:

10. Get close to your best customers. You know who they are. Be proactive: Double down your efforts to stay close to them and keep them on your customer list.

9. Figure out how to forecast 2009. Get your best sales guys together to figure out who will be spending what. Which advertisers are going to cut back, which ones will keep spending, which will accelerate to gain share? Don’t forecast from ‘08 budgets — build from the bottom up. And keep revising.

8. Believe in endemics. If you play in a niche, focus efforts on endemic advertisers that need to be in that niche.

7. Find brands that are spending to gain share in the downturn. Yes, most advertisers are pulling back. But our group of experts have noticed that certain brands are viewing the downturn as an opportunity to gain share of voice, and so are actually spending more. Go find ‘em.

6. Turn remnant inventory into premium. Vanilla ice cream can either be seen as plain ole vanilla (in other words, remnant) or, when topped with a cherry and a little whipped cream, part of a sundae (in other words, premium). The same applies to ad inventory. One great “cherry” is to create events, which advertisers love. Be creative in crafting events, and then figure out how to recharacterize existing inventory, which ordinarily might be sold as remnant, as part of premium packages around those events.

5. Start early and aim high. When selling key sponsors, pitch them early in the creation process so they have a chance to be truly integrated into the program, and aim to get time in with senior execs from both the agency and the client.

4. Remember: It’s not about you, it’s about them. When pitching an account, remember that it’s not about your great technology or your brilliant innovation; it’s about the brand and their customers. Create a narrative about how you help them achieve their objectives.

3. ROI, ROI, ROI! Did I mention ROI? An ad recession doesn’t so much provoke a flight to quality as it does a flight to what advertisers know works well. Focus on measuring campaigns to show they work.

2. Mine your data. Advertisers love data about what real consumers are doing. You may not recognize it but you have amazingly rich data about your viewers. Capture it and share it with your advertisers (packaged to protect their identity, of course).

1. Hug your stars. Identify your best people, and make sure they know — and feel — how valuable they truly are.

Mike Hirshland is a general partner at Polaris Venture Partners.

This week I was in Camden, Maine, attending Pop!Tech, an annual gathering of thought leaders in technology and design launched in 1996. This year Pop!Tech inaugurated a three-day bootcamp for social entrepreneurs, called the Social Innovation Fellowship Program, the latest addition to Pop!Tech’s year-old startup incubator, Accelerator.

The purpose of the program was to tutor 16 social entrepreneurs, most of whom run nonprofits, in “go to market” strategies. But many of the 22 lecturers delivered advice equally relevant to for-profit startups. (Fans of Y Combinator should check out Accelerator.)

Particularly useful was a primer on branding by Cheryl Heller, the founder and CEO of Heller Communication Design in New York. Most companies invest hundreds of thousands of dollars to produce successful branding campaigns. Heller’s three-hour session gave Pop!Tech’s social entrepreneurs a good dose of that value for free. Now you’ll get it, too.

Most of us think of our brand as a tool for communicating who we are and what we do. We think of logos or catchy names — totems that convey the mission or identity of our businesses.

A good brand does express identity, Heller said. But great branding goes one step further. You must think of your brand less as a tool for communicating identity, and more as a tool for conveying a promise.

“You don’t have a brand,” Heller said, “you have a brand promise. [A] brand promise does more than express who you are, it indicates to your audience what they can expect to get from your company in exchange for their money and time — whether they are a customer, partner, investor or employee.”

There’s a key word in her definition that 99 percent of entrepreneurs overlook: employee. “Employees are the most important audience any company has,” Heller said. If your brand promise does not engage your employees, you won’t be able to deliver it.

Heller offered a simple case study to illustrate her point. The Ritz-Carlton Company, widely recognized for effective management, also has a very successful brand promise:

Ritz Carlton: Ladies and gentlemen serving ladies and gentlemen.

As Heller explained, this tells investors: Ritz-Carlton serves a distinguished clientele. It tells employees: A high level of behavior is expected of you and you can expect a high level of treatment from Ritz-Carlton. It tells customers: You can expect a certain experience when you stay at a Ritz-Carlton hotel.

When done right, the most effective branding is really an act of persuasion. Can your brand convince people to do something they wouldn’t ordinarily do, or buy something they wouldn’t ordinarily buy? Can the power of your brand persuade people to buy your good or service, even when external circumstances (such as a recession) suggest they ought to prioritize other actions, first?

If you can answer yes to any of these questions, you have a persuasive brand. But the real payoff of persuasive branding isn’t loyalty, Heller emphasized. It is forgiveness. Every company makes mistakes. Have a bad stay at the Ritz? Have a bad flight on United? Which has the more persuasive brand promise? (United: “Fly the friendly skies.”) Which company are you more likely to forgive?

So how do you create a brand message that expresses your identity, delivers a compelling promise, and persuades your audience to behave in a certain way?

Four Tips on Persuasive Branding:

1. Be brief. Be clear. “Clarity and brevity do not come naturally to entrepreneurs with a mission,” Heller lamented. Use the Ritz Carlton promise as an example. Notice it does not include words like “luxury” or “hospitality.”

2. Don’t clutter your brand promise with references to how you differentiate yourself. “Who you are and what you do is core to your brand promise,” Heller said. “How you do it, that changes as you grow.” Wizbang as your technology is, it is only one of your tools. Don’t mention it.

3. Avoid common words used by other companies. Heller’s examples: strategy, core values, mission, vision, operational excellence, efficiency, value-added, character, integrity, positioning, sustainability, corporate citizen, cause.

4. Speak to all your constituents: customer, partner, investor, or employee.

Someone recently pointed out to me that “a crisis is the ultimate teachable moment.” Startup founders have long known this. Whether you find yourself dealing with a sudden lack of access to commercial loans, the collapse of a funding round, a management change, or even a failed product, you can help yourself work through such unpredictable — yet probably inevitable — business challenges by being prepared in advance with a response plan. One of the most important areas of your preparation, but one that is often overlooked, is your communications plan.Maintaining clear and consistent communication with your staff, investors, customers and your partners can make all the difference to the success or failure of business in crisis, says Wendy Lane. She is founder of the public relations and marketing firm Lane PR based in Portland, Ore. Over the years Lane has helped clients, cope with all kinds of crises: from bankruptcies, to public political snafus, and in once case, a violent tragedy at a place of business. (Believe me, this sort of crisis puts the stock market turmoil into perspective, fast).

The point is, a crisis is a crisis because it creates uncertainty. You cannot predict exactly who you’re going to need help from in a pinch – employees or lenders, or both? People you thought you could rely on will surprise you in positive and negative ways. This is why keeping healthy lines of communication open with all of your constituencies is so important. Naturally you should do this as a matter of course in your daily business, but in the end, says Lane, “Good crisis communications is about transparency, transparency, transparency.”

Lane’s firm has a crisis management plan for its clients. She offered to share it. Here are some takeaways:

1. Identify risk areas of your business that could lead to an internal crisis, or be compounded by an external one. You’ve already done this with your business model, now think about how your risk area could be compounded by exposure to customers or the media. Risk areas to consider: death or serious illness of a senior executive; serious on-the-job injury; technical challenges; natural disaster; security breach.

2. Create a crisis management team and have a senior executive it. Appoint an internal communicator to support employee communication activities. Select an external communicator, to deal with outside parties like media or retail customers. (If you have one, this is your PR counsel.) Deal with investors. If you cannot take it on, appoint another senior staffer to deal with partners. Just make sure no constituency is getting communication from more than one person – consistency is important.

3. Develop a call list. Sounds like a call tree, but do it. You have no idea how much it will help you in a panic to have previously prioritized who among your senior staff, or your board, needs to be contacted, and in what order. Contacts for every member of your crisis management team should also be on the call list.

4. Develop your message. Do not do this in a vacuum. Use your crisis management team to help you. Any outside adviser you enlist for help (a lawyer, etc.) is now de facto part of your crisis communications team. Choose carefully.

5. Notify your constituencies in a concerted effort. Tell non executive-employees collectively about your crisis in order to dispel rumors and speculation. Call a staff meeting, send a broadcast e-mail or voice mail. Do not communicate piecemeal. Be candid. Deliver updates as information is available.

6. Assume that any information you share with employees, partners, investors, etc. could be communicated to the media or outside parties.

By now Sequoia’s “RIP” slide deck and the ensuing blog coverage have been consumed by every entrepreneur and investor in the tech universe. It hit a nerve. Perhaps it provided a wake-up call, or simply confirmed people’s worst fears. For first-time entrepreneurs, or for those who have forgotten what happened just seven or eight years ago, this sort of shock therapy could be effective.

But the bottom line is that it is superbly hard, even in good economic times, to really impact the world with an innovative new product from a small company. The odds are hugely stacked against you. Would-be entrepreneurs and investors alike tend to forget this. They grow complacent when they are bailed out of mediocre situations or make money far exceeding what they deserve. They begin to believe their own BS. A troubling sense of entitlement lulls them into a false sense of security that they are not actually fighting for their economic lives, every minute of every day. It happened during the dot-com bubble and the housing boom, and now it’s happening on Wall Street.

The truth is, founders should be ruthlessly hard on themselves irrespective of the economic climate. Treat every break you get as the last miracle left on Earth. You should always be asking yourself: What could be done better? What’s not working? How can we be more capital efficient?

Any entrepreneur who woke up this morning and said, “Hey, I found $200,000 that I can cut out of my burn rate,” should be taken out to the woodshed. The fact is, cutting fat should be a standard operating procedure, not a reaction to a financial crisis. A knee-jerk reaction can also cut too deep, stalling innovation and growth, with the same inexorable end: failure. The same is true for VCs. Investors cannot afford to be intellectually lazy in easy times, only to wake up surprised by a changed environment and reactively change their investment tone.

You need to build your business, or your portfolio, based on underlying fundamentals that will carry you through good times — and bad.

Here are a few things I think all entrepreneurs should do now:

1) Reaffirm the value-creating milestones for your business.

2) Focus your capital on hitting them in the most efficient way possible.

3) Ensure that your current cash is safe. Is it invested in stable corporate bonds (like GE)? Or is it sitting in financial institutions, even the finance arms of manufacturing companies (like GMAC)? Are your lenders likely to deliver money they have agreed to lend? Do your investors have reserves for future rounds?

4) Look at your burn rate to make sure current expense rates still make sense. This has more urgency for later-stage companies that are selling a product, but those in R&D mode should always be thrifty.

5) Lead. Reaffirm the viability and vision of your company to the troops. This will counterbalance people’s tendencies to worry about their jobs and dreams, even decrease the time spent watching stock tickers.

Although it is too soon to tell what the true extent of the recent weeks’ turmoil will be, the secondary effects of this crisis will likely prove worse for entrepreneurial companies. Between skittish customers and the herd mentality that often manifests itself in the venture community, the startup jungle will certainly be a less forgiving ecosystem for awhile.

However, while funding will be harder to come by, there will continue to be capital available for really great companies and good ideas. Keep in mind that many of our greatest companies were founded during, or toward the end of, recessions, among them IBM, Hewlett-Packard and Microsoft.

Bryan Roberts is Managing General Partner at Venrock.

Fundraising always demands patience and grit, but passing the hat in the current environment will test your founder’s mettle unlike any time in recent history. Even investors still flush with cash that, only weeks ago, they had planned to put to work, now have grown skittish over the frozen credit markets and are knotting their purse strings instead. If you’re looking for financing, be prepared to work very, very hard for it.

This is true even for the most seasoned entrepreneurs, like Scott Painter, whose pedigree boasts 29 companies, including the early web auto retailer, CarsDirect.com, software and services provider, Zag.com, and most recently, TrueCar, the Zillow for car buyers.

Last summer, as the financial markets inched toward collapse, Painter closed a $15 million Series C round for Zag.com. It was harder for him than normal. Painter has raised hundreds of millions of dollars in his career ($350 million for CarsDirect, alone). Zag has a seasoned management team, plays in a space Painter knows well, and it generates over $1 million in monthly revenues.

“All that and I still had to pitch 120 investors to get one to say yes – 120 twenty pitches later!” Painter booms into the phone. “But look, don’t despair either,” he quickly adds. “Fundraising is a numbers game. The biggest thing founders need to hear right now is that it doesn’t matter if it’s a good market or a bad market, there is someone who will fund every quality company that solves a relevant problem in capital-efficient manner. You’ll have to be realistic: It is most important that you get the money. Don’t quibble about terms and conditions. Forget valuation. Just meet more people, meet more people, meet more people.”

If getting through 120 pitches daunts you, Painter has help. Over the past 16 years, he has streamlined his pitch method to an art –- even using web tools to automate much of the work for him. He explains how, below, in his 12 steps for short-circuiting “the funding numbers game.”

1. Skip the PowerPoint. ”It’s expected, [but] a waste of time,” says Painter. “I never go into a meeting planning to present a slide deck.”

2. Build a web toolkit instead. Painter means a web-hosted version of everything you would have put in your deck, including your financial models. This screenshot shows such a slide for Tag. The value-add: “Viewers can toggle the metrics up or down if they think my assumptions are wrong, and the whole model adjusts.” Painter finds investors love playing with it.

3. Lock it. Make your tool kit a private site, accessible with a login ID and temporary password of your choosing. When you invite viewers to the site, require that they use a personal email as their login ID.

4. Build your mailing list. Painter starts with up to a thousand VCs and narrows it to “a few hundred” who have investments compatible with his startup. Use sites like The Funded to help you narrow your list.

5. Send the “sexy tease.” By now Painter’s email is written, and it’s short. He introduces himself in a sentence, offers a sexy tease on the company and closes with: “Here’s a link to a site if you’d like to learn more.” Do not ask for a meeting, Painter warns. Do include your site’s password.

6. Wait two weeks. Change the password.

7. Check the logins. Since you’ve required personal emails for the login ID, you’ll see each investor who looked at your plan, what they reviewed, and for how long. “And when a VC says ‘We’re going to pass,’ I can tell if he hasn’t even gone to our site. Expect a 10 percent view rate from your email blast.

8. Now reach out. Your first round of calls goes only to VCs who have already reviewed your plan. The cold call is now a warm call: “We see you went on our site. You looked at X. Do you have other questions?’” Expect two-thirds of your viewers to return your call.

9. Request a meeting. By now you’ve reduced your initial task list of 200 VC-contacts to 20 calls and 12 phone conversations. Be pleased if half of these take a meeting.

10. Meeting one. Smile. Listen. Be responsive. “And get out of there as quickly as possible,” says Painter. “The only goal is to get meeting two.”

11. Meeting two. Make it long. “I always try to see how long I can keep them asking questions.” Talk about your philosophy, your industry. Spring to get employees on the phone with answers.

12. Dinner. “This is about getting personal, because you’ll need a champion, someone who’ll say ‘this is my deal’ in the final partners meeting.”

If you get this far, you’ve done your job. The rest is out of your control. Painter’s method is no guarantee of funding success, but it will cut weeks off the path to a final ‘yes’ or ‘no’, sparing you precious resources and energy.

Meanwhile, Painter offers parting encouragement: “VCs are still sitting on large funds. The biggest financing impact will be on mid- and late-stage companies that aren’t yet self-sufficient. Rounds for startups are still closing. They did last week, as well. True enough, there is panic. But this does not mean entrepreneurs should pack it up and go home. Building companies during a recession is certainly more challenging, but sometimes it’s a better test of what should survive in the first place.”

The economy is changing in dramatic and unexpected ways, and many of us are having a difficult time deciding how to react. Should we adopt a bunker mentality, or keep plugging ahead as if little has changed?

The fact is that entrepreneurs are well-suited to respond to the chaos, perhaps even to use it to our advantage, because we recognize that every challenge really presents a new opportunity. To anyone heading a startup, steeling yourself for the ups and downs of circumstances that are often largely out of your control is a daily ritual — even in good times. Sure, the credit markets are throwing us some new tricks now, but dealing with uncertainty is old hat for founders.

Call me an inveterate optimist. But with so much doom and gloom in the media, I’m offering four tips for maintaining a positive perspective through the current events. If prognosticators are right, we will live with these painful economic conditions for a while. Positivism is a discipline we all need to hone.1. Listen for substance. Vet for noise.

You’re going to get a lot of downtrodden talk, and head-shaking. Listen carefully to your employees, capital partners and industry experts. But train your ear. Vet at the same time. Your job as an entrepreneur is to drill down to the heart of matters. Is the fear and concern being voiced to you based on valuable information, or is it just negativity? If it is the former, respond. If it is the latter, vet and ignore.

2. Ring cash out of your contracts.

You must wring more bang out of every buck now. Vendors are uncertain, too. This is your chance to renegotiate everything: leases, open-ended vendor contracts, advertising rates, technology purchases, you name it. If you’ve been prudent and have a history of paying your bills on time, business partners will pay a premium to continue to do business with you. Economic uncertainty works in your favor here.

3. Pull a Buffett: Buy low.

I’m talking about human assets. Great people are now available. Such employees pay for themselves. A partner recently introduced me to a candidate for a big job we needed to fill. One conversation and I knew he was a great fit. Normally, I couldn’t have afforded him, and he probably wouldn’t have returned my call. But his phone isn’t ringing much lately. So I reshuffled our cash position to seize the opportunity. Warren Buffett would be proud that I borrowed a page from his playbook and “bought low.”

4. Offer people a reason to adapt.

People won’t change unless you give them a reason to change. Customers need a better product, or a cheaper price. Employees need a new mission, or a new incentive. In any case, it is usually excruciating pain that convinces a person, or a business, to consider a proposition that alters their status quo. Pain like: a device or service that no longer works; an operating budget slashed; an external economic crisis.

Painful economic conditions are, in a peculiar way, ideal for entrepreneurs: They present us with numerous opportunities to convince people to change their behavior. The playing field is ripe for innovative products, services and business models. Deliver one.

No question, we face challenging times. But each of us has the chance to benefit from the opportunities intrinsic in the chaos.

Mike Sheridan is founder and president of Global Debt Network Automotive, an online marketplace for trading auto loan portfolios.

Updated with the Sequoia powerpoint: Last night I reported on a special meeting held by Sequoia Capital for its portfolio companies, warning them about the fiscal hurricane that was going to hit them, and how they’d better figure out ways to survive what could be a big downturn.

There were some gaps in the details about that meeting, but I have since been able to piece together the minutes and what folks there essentially said. Since these are second-sourced details, I cannot say they are a 100 percent accurate, so please view them with a degree of skepticism. Nevertheless, I still feel confident enough to share them.

These were the four speakers:

Mike Moritz, General Partner, Sequoia Capital, who moderated the speakers. The speakers were Eric Upin, Partner, Sequoia Capital, who until recently ran the $26-billion Stanford Endowment Fund, and Michael Partner, Sequoia Capital, who was Sequoia’s very first hedge fund manager and worked at Maverick Capital and Robertson Stephens. The last speaker was, as I mentioned before, Doug Leone, General Partner, Sequoia Capital.

Moritz Musings

Mike Mortiz kicked off the proceedings by saying that these are drastic times and that means drastic measures must be taken to survive. His message to companies was don’t worry about getting ahead, instead, “We’re talking survive. Get this point into your heads.” He warned that companies need to be cash-flow positive, and if they are not, then they need to get there now, because raising capital without being cash-flow positive is going to be tough. He was warning that there will be a price to pay for those who hesitate to act.

Upin Says

Upin, who knows a thing or two about money and markets, told the room that we are in the beginning of a long cycle, what he called a “secular bear market.” This could be a 15-year problem, he said. This comment was accompanied by many slides that showed historical charts of previous recessions averaging 17-year cycles. He pointed out that the issue here is not the equity markets but the credit market, and that will take a long time to recover. He was ominous in warning the startups that this is a global issue, it is not a normal time, and is a significant risk not just to growth but to personal wealth.

He advised startups to make drastic changes, to cut expenses and to cut deep, but to still keep marching. “You can’t be a general if you turn back,” he apparently said. The point he hammered on was that since you can’t manage the economy, manage everything else, including your business. He had some interesting advice for startups.

• Cut spending. Cut fat. Preserve capital.
• Throw out the models and spreadsheets, because all assumptions will be wrong.
• Focus on quality.
• Reduce risk.

Michael Beckwith

Michael Beckwith’s presentation had lots of charts and data and he pointed out that the V-shaped recovery is unlikely. He also said that the cuts in spending will accelerate in the fourth quarter and the first quarter of 2009, and pointed to eBay as an example.

Leone’s lessons

Doug Leone told the group that this downturn was a different animal and one from which it would take “years to recover.” He was clear in pointing out that:

• Unprofitable companies would have a tough time raising cash, so get cash-flow positive as soon as possible.
• Go on the offensive and pound on your competitors’ shortcomings.
• Be aggressive with your messaging and be out there. In a downturn, aggressive PR and communications strategy is key.
• Decline in M&A will mean that only lean companies with sales models that work will get bought.
• When it comes to deciding between capital preservation and grabbing market share, he advised that everyone should be preserving capital.

Leone’s other tips for companies, especially the Sequoia portfolio companies, were something like this:

• Start with zero-based budgeting.
• Cutting deeper is the formula to survive, and this is an era of survival of the quickest.
• Make sure you have one year’s worth of cash.
• If you have a product, reduce expenses around it and boost sales. If the product is ready, cut the number of engineers.
• Focus on building the absolutely essential features in your product.
• Be brutal when it comes to marketing — anything that isn’t working, cut it.
• Don’t burn through your cash, for cash is king.
• Cut base salaries on sales people and leverage them with upside.
• Most importantly, be true to yourself.

Being smart about legal matters can make a huge difference in the value of your company. Each legal decision you make — each strategic partnership, each trademark or patent filing — can add or subtract from it.During the ’90s, my law firm worked with an internet software company whose proposed $400 million sale was stopped dead because of an ill-considered distribution deal it had signed for an Asian market. To the would-be acquirer, the deal was a fundamental obstacle to its own use of the startup’s technology. We eventually fixed the distribution deal, but not in time to save the $400 million deal. It took another 10 years to sell the startup at a favorable price.

Entrepreneurs aren’t typically well-versed in legal issues, and few have deep enough pockets to have lawyers evaluate the implications of every decision they make. That’s why I wrote a book that tells entrepreneurs what they need to know about technology law. As an example, here are five vital legal strategies every digital entrepreneur should know:

5 Vital Legal Tips for the Digital Entrepreneur:

1. Mix open-source with proprietary licensing. MySQL offers both open-source and proprietary licenses for the same code. Why would companies pay for free software? Some large companies want to create derivatives, but not disclose trade secrets, and so will pay for proprietary licenses. Red Hat supplies Linux under the GPL, but gives paying subscribers a suite of proprietary tools for installing and managing networks that run Linux.

2. Secure startup IP. Any code you wrote before you incorporated your startup is not automatically property of your company. You must formally transfer pre-existing code to your company to secure ownership. Failure to “tie down” IP to the business can be problematic, especially when early employees leave the company. It can also block a VC investment.

3. Police user-generated content. While valuable, such content can expose your company to copyright owners’ claims. Help yourself by adhering to “Notice and Take Down” procedures of U.S. copyright law. But these protections don’t apply if your company benefits fi