Less Burn, More Lift

Even though he hasn't always paid top dollar, Eisler claims that he has been able to recruit strong engineers by offering non-cash forms of compensation. Part of the draw comes from the inherent appeal of his company's projects. And for a pre-IPO company like Action Engine, stock options matter as well: While they don't carry the weight that they once did, they still have the power to sweeten a deal.

No cash-saving measure is completely painless, and the steps that Action Engine is taking may slow its growth rate slightly. But in an environment where profitability trumps soaring revenues, more and more Internet CEOs are willing to make such trade-offs.

At Respond.com, Lyn Chitow Oakes says that her goal is to make the online shopping-referral service profitable by 2002, while covering losses this year with money from Respond's last infusion of venture capital -- the $66 million that the company raised in early 2000. "We want to be self-funding after that," says Oakes, 39, who became CEO of the Palo Alto-based company early this year. Does she worry that Respond won't be able to pursue every business opportunity that comes its way? "That's probably good," she says. "You want to stay focused."

Some of the best advice on handling tough times comes from Allen, of IntelliSpace. In a previous job, he helped engineer post-merger integration for Frontier Communications when the Rochester, New York-based company expanded into New England. (Frontier was later acquired by Global Crossing Ltd.) That experience taught him a lot about what can be squeezed -- and what can't.

Among Allen's rules: Avoid major layoffs if at all possible. Sure, layoffs cut costs in a hurry. But they also send a loud signal to customers, suppliers, and remaining employees that a company has gotten way off track. EToys, for example, announced major job cuts in January but still failed to build momentum. (A month later, it fired its entire workforce.) And other Internet companies -- among them MarchFirst and priceline.com -- have found that even after headline-grabbing staff cuts, their stock prices have remained volatile.

It's important, Allen argues, to focus not just on reported profits or losses but also on the actual movement of cash. When he first arrived at IntelliSpace, for example, the company was keeping on hand as much as a 90-day supply of the routers that it needs to get customers hooked up to its high-speed data network. That amounted to $300,000 worth of inventory -- and a big drain on cash balances. So he encouraged colleagues to switch to just-in-time purchasing.

Allen's next rule: Communicate, communicate, communicate. Whenever his team initiated a small austerity measure, such as limiting the use of overnight couriers, Allen went out of his way to tell employees why the team was taking that step, how much the company would save as a result, and what he understood the overall health of the company to be. "If you don't do that, the weirdest rumors can get started," he says. "You never want to undercommunicate."

Finally, says Allen, the best way to slow down a burn rate is to keep growing: "We told people, 'Everyone sells. I don't care if you're in finance or marketing, rather than sales. The best way to help the company is to get people to buy our products.' We even got our purchasing manager to start asking vendors what their Internet service was and whether they'd like to hear what we had to offer."

With pride and delight, Allen adds, "I think our purchasing manager has completed three or four sales now."

George Anders (ganders@fastcompany.com), a Fast Company senior editor, is based in Silicon Valley.