Tough times, hard decisions.

Given the challenging economic environment, we’ve decided to cut costs at Mahalo.

Although we’ve got a significant amount of cash on hand, and the business is ahead of schedule in terms of traffic (4m uniques a month, double where we thought we would be at this point), we’re fairly certain that the advertising climate for the next two years will be severely depressed. To ignore this obvious fact would be irresponsible.

We’ve laid off a just under 10% of our full-time staff, cut our overhead by doing smart things like renting desks (we have six offices in Santa Monica fyi), and reorganized our editorial department to focus on freelance positions over in-house editors. The net result of the effort is we are giving Mahalo another year of “dry power” (or runway) to complete our mission.

We can now operate past 2012 even if we never make any advertising revenue, and truth be told building advertising-based companies is my specialty (the last two, Silicon Alley Reporter and Weblogs, Inc. each broke 10m a year revenue between their third and forth years). Perhaps we’re being too conservative, but I’ve rarely heard of companies that went out of business because they made cuts too early, and I’ve heard of many who have reported the opposite.

As the CEO of the company, the responsibility for these cuts are mine and mine alone. Obviously, I did anticipate that the market would correct and that is why we raised $20 million over two rounds of funding before we launched. That move ensures that Mahalo will be able to get to profitability and ride through what is sure to be a very deep and painful recession.

While I anticipated and prepared for the ‘internet winter’ we’re now facing (you’ve read my posts and e-mails about the startup depression I’m sure), I failed to realize how bad the situation would get. It’s much worse than I thought it would be, and ignoring market conditions today would only mean deeper cuts down the road.

It’s my responsibility to make this hard decision and I don’t take it lightly. To the people impacted I’m very sorry that I wasn’t able to anticipate this better. It’s my fault and I’m sorry that you’ve got to bear the burden of my inability to better prepare.

75 thoughts on “Tough times, hard decisions.

  1. jdawg,

    may i suggest the notion that inflation, not deflation, is
    the real concern. this means currency devaluation is the
    story. i know it is not what we have seen thus far, but i do
    believe strongly inflation is coming, just like we have seen
    it up until 2008, next wave will be even more painful.
    check the book “crash proof” by peter schiff.

    more importantly, don’t forget that 9/11 was an inside job.
    the real “lesson” of this downturn is that you can’t live
    in a society where stuff like that happens and think that
    you will be safe if you don’t say anything about it. as
    we are in the midst of learning and will continue the learn,
    the safer thing to resist tyranny, not submit to it.

  2. Saying that a rapidly growing industry will suddenly become “severely depressed” for two years is one thing, but to call it “an obvious fact” is just entirely baseless and laughable.

  3. I don’t get it. Shouldn’t companies invest in online advertisi in the g m
    more because it’s cheaper? Do they expect to stop selling in the next two years?

  4. The hard decision in this case
    for you as the CEO is to stand in front of your investors and
    to say we will not cut 10%, we will reduce salaries by 5%.
    Why, as you wrote in the header “tough time”, in tough times
    managers needs to be more human (you wrote
    “we’ve got a significant amount of cash on hand,”)
    and to try to help other workers to X the ocean.
    I’m not saying not to cut workforce, but in this case
    a small company with enough cash, company that operates like
    a small unit/family, you have the option to cut salaries
    instead. this is the hard decision.

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