Is your startup Antifragile?

In the best selling book Antifragile Things That Gain From Disorder by Nassim Nicholas Taleb

The author states “we must learn how to make our public and private lives (our political systems, our social policies, our finances, etc.) not merely less vulnerable to randomness and chaos, but actually “antifragile” — poised to benefit or take advantage of stress, errors and change.”

How does this apply to startups and venture funding?

Venture dollars vs. customer dollars

Think about how much more a reacurring. revenue dollar is worth than an investment dollar is it 3x , 5x. ,10x. in a downturn it might be 100x and the difference between surviving and shutting down.

In the beginning of a cycle no doubt hyper blitz scaling, super fast growth. and eye popping venture investment has a high probability of success as long as you are executing can create a massive company.

In this strategy selling a big story on how the funding will help you tackle other pieces to make your idea bigger.

The initial traction is just to show you are able to execute as strong founder. The next step in order to achieve larger rounds of funding you sell the story on your how that new funding will unlock the next set of customers who want other things and will increase your LTV so you can pour more into acquisition and a large valuation increase .

In a downtown or funding winter many companies using this strategy will run out of money and cease to exist.

In this environment controlled growth, profitability and customer funding via sales will allow you to survive the winter and become the last one standing .

As a result, of the current 10 year ongoing bull market private company funding and valuations are exceptional high. VC and PE backed companies and other growth-oriented investments are typically not viewed as “safe” or defensive from an investment standpoint.

Sometime in the next 6–60 months investment safety could potentially become a growing priority for investors.

In this environment some of these companies may fare better than others in a shifting economic climate. Most likely the following characteristics will likely contribute reasonable. valuations and a higher probability of survival this late in the cycle .

In a market downtown or a funding winter.

It will no longer matter if you are moving fast.

Almost over night it will matter if you are doing things right and building a network of people who will gravitate towards your product or services. In the long run no matter what the initial growth strategy was focus on customers or product. first , employees second and investors third has built the largest market capitalization companies in the world .

Getting to at least break even

If a startup can become profitable, on an Free Cash Flow (“FCF”) they can become stronger by surviving then acquiring the best of the competitors talent and resources and are more likely to weather a downturn. Positive FCF means the company is generating more cash than is used to run the business.

When a startup doesn’t need to raise venture capital to sustain operations, which tend to dry up in down and tightening markets. They control their destiny and have plenty of options.

Companies with positive EBITDA, will most likely have the option to seek alternative financing, such as debt, to maintain operations. Companies with negative EBITDA will find it harder to raise debt, as EBITDA is a universal metric used in. PE financing.

Some measures of defense

Achieving product market fit when you can repeatably acquire customers for a lower cost than what they are worth to you.

The holy grail is to find repeatable customer acquisition channels that can scale to the $100m per year profitability level as cash efficiently as possible.

Getting to a Sticky Customer Base — in times of uncertainty most corporations and customers reduce spending, focus on essential purchases, and seek alternative, cheaper products and services. Sticky customers are more likely to continue purchasing goods and services during slumps and not seek out cheaper goods.

A high but not too high cash balance, usually through recent funding rounds, is important for startups during market volatility, as they may not be able to raise capital, venture or otherwise. As a result, a high cash balance will allow them to continue to spend, grow and sustain negative free cash flow.

Cash flow Growth is a function of the product

Leveraged by the marketing.

Focus on what you can control is key

No one can predict the exact moment the music will stop and the party will end.

No matter whether we are in the begging, middle or end of the cycle.

The purpose of a company is to bring a product vision to life . All the other components are in service to the product .