Bust cycles: what startups need to consider in the current market
All of this has happened before, and all of this will happen again.
Boom and bust cycles are no strangers in the startup world, but what does this mean for swathes of VC-backed startups that have the potential to go under, particularly in today’s economic climate?
With the heady days of ZIRPs and a growth-at-all-costs mentality now nothing more than a pleasant memory, investors have tightened their belts and are zeroing in on revenue-generating businesses, or those that have a clear path to profitability. Today, resilience is key and founders need to focus on building actual (money-making) outfits, rather than building pitch decks for the next Uber for hamsters.
Resilience to a fluctuating market can be achieved in several ways, but above all else, startups need to remember that cash is king, and runways are termed as such for a reason.
TRIMMING THE FAT
Cash is king, and a comprehensive review of expenditures can reveal a number of items that affect the bottom line. While niceties are certainly that, these perks are best saved for sunnier days, and actions, services, suppliers, or anything in between that eats away at the bank account needs to be put under the magnifying glass.
If it isn’t paying for itself or generating profit, it’s time to trim the fat.
CUSTOMERS, CUSTOMERS, CUSTOMERS
While it should go without saying, the acquisition of more paying customers is crucial to staying afloat. These additional revenues extend a startup’s runway, further lengthening the time between funding rounds.
Ultimately, this translates to retaining more equity in the company that founders often devote every waking moment to, and not having to further dilute on the cheap to survive.
FROM THE FORGE
Historically, some of today’s largest and most successful companies were born in times of strife; Amazon.com, eBay, Nvidia and Google are prime examples.
There’s no denying that a volatile market makes for more than a few sleepless nights, it’s also a proven factor in focusing the resolve of many a founder.
As mentioned above, when it comes time to trim the fat, founders want to ensure that their company minimises the potential of becoming someone else’s fat. Due diligence and solid research are crucial to developing solutions to problems that potential customers face daily. Be wary of the pitfalls of developing a solution in search of a problem.
If you’re not solving a problem that a customer is willing to spend money to solve, you’re not building or running a business.
LEVERAGE THE NETWORK(S)
Human beings are innately social beings. Rare is the lone wolf, rarer still is the successful lone wolf running a business. Do not underestimate the power of speaking up and asking your network(s) for help and support. The quickest way to receive nothing is by not asking.
This rings equality true with your existing investors. Many, if not all, VC’s say they offer value beyond capital; now’s your opportunity to take them up on this claim.
Lest founders forget, each and every one of their financial backers has a network of their own. Leverage it.
How can they get you and your business in front of prospective customers? How can they help develop new product lines? Can they provide support in identifying and facilitating a time to pivot?
KNOW WHEN TO FOLD ‘EM
One of the most difficult decisions a founder will potentially ever face is that of knowing when to call it a day.
If the pivot didn’t pan out, the slashing and burning failed to provide fertile soil, and every conceivable avenue has been explored and exhausted, there’s no shame in calling it quits and returning investors’ cash (while there still is any). I learned this the hard way with my previous business — and it took almost two years to recover from.
Startups in their very nature are generally a swing and a miss, so don’t be afraid to chalk it up as experience for the next — and hopefully more successful — venture.
This post first appeared online as an article for Startups Magazine — the platform helping tech startups connect the dots on their entrepreneurial journeys. You can read it here.
If you’d like to chat about any of these ideas, you can find me on LinkedIn, Twitter or book an Office Hours call.
For more information about Metta and the work we do, head to our website. Check out our podcast Metta Talks to hear the latest about #startups, #innovation, and #sustainability. The team is also on Twitter — reach out to us @mettatalks.
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Wil Benton — wil@metta.partners | linkedin.com/in/fatkidonfire | My Calendly is here
