Startups: It’s time to pay attention.
Lessons in basics and bootstrapping.
Everywhere you look now, you’re seeing posts on the tech “crash,” increasing likelihood of recession and growing layoffs. We’re heading there now.
Those of us who’ve lived through downturns before know they are inevitable cycles and serve to clear paths in the market for better, future growth. That doesn’t mean it isn’t stressful or painful. In this paradigm, it’s not the most money that wins but the best fundamentals.
This moment forces clarity of purpose, priorities and execution excellence. Companies who deliver real value survive and thrive. Weak companies without enough momentum tend to wither. There are plenty of forecasts out there — look here and here for broad context.
In short, it’s back to basics and bootstrap mindsets.
French Tech has always been more conservatively financed and managed, so “our” startups have both experience and lessons to share. The emphasis on financial autonomy is completely relevant now that future fundraising could be limited.
Here are a few proactive considerations to (re)focus:
Lead from your values.
Be sure that what you’ve posted on the website lines up with your real actions. Transparency and trust mean open and ongoing communication.
When management teams are suddenly hunkered down, people notice. Instead, everyone should understand your market’s outlook and know how you are monitoring the business. Express confidence in the team’s collective ability to navigate change. Actively elicit and reward ideas that improve productivity, save money and retain customers. Explain what to expect if trouble is ahead.
Straight talk gives everyone a better sense of stability, empowerment and control — and ensures your teams give customers and partners get the right messages.
Know the “why” of your programs and budgets.
Assess business cases once again. But don’t make it top down; make it function by function.
For each key program, document objectives, cost, value (qualitative and quantitative) and current performance; how long it’s been running and why you started it; how it contributes to revenue, growth, customer experience and retention and/or employee retention and satisfaction; how easy or hard it is to “unplug” and what would happen if it went away.
Teams should be ready to justify, cut or trade off spending. Doing it proactively, collectively and collaboratively now means less tension and faster decisions later.
Just like the spend creep of your personal streaming services and other apps, also search for the forgotten subscriptions that can be cancelled without loss.
A point: Marketing is often the first target for cuts and unfairly so. Don’t be short sighted. Consider the financial and opportunity costs of shutting down and restarting the engines for leads, visibility and content — and the risk of losing business to better-positioned competitors. Be precise in your analysis and decisions.
And in the event you don’t need to make any significant cuts? Congrats — you can reallocate programs and resources based on knowing what’s really working and what’s not. (Of course, this should be “standard operating procedure.”)
Mitigate customer risk.
Realize that your customers are undergoing similar reassessments. As startups, it’s existential to focus on flawless delivery and ongoing proof of value. Be careful not to overcommit.
If team resources are scarce, where will you place your bets to ensure success?
Analyze the customer base based on profitability, upsell potential, churn risk and longevity. Assess strategic value based on their referenceability, reputation as a “marquee” company and influencer relationships with your current or potential partners. Flag customers in sensitive stages of deployment, renewals and the first 90 days of usage when the spotlight is on. Do the same with active prospects, trials and PoCs.
The point is to know where you should concentrate your efforts, which prospects to pursue or drop and uncover any customers you can’t afford to keep. (You know those deals you made to win “at all costs”? They may burn you now.)
Tune in to your teams.
Be sure you know who your superstars are, especially those closest to the customer. Younger startups often have unbalanced sales teams, where most of the deals are won by only a handful of sellers. Customer success teams may have one leader with deep experience, surrounded by juniors who are learning by modeling. Protect those who really deliver.
Beware of burnout. Pay attention to your HR teams, who’ve carried an extra heavy burden counseling the rest of the organization for far too long. They’ve likely been lurching from the pandemic to the great resignation to the recruiting wars.
Likewise, don’t forget about the quiet workhorses who have been performing behind the scenes (behind the screens) in IT. They’ve kept things running from remote to hybrid to on-again/off-again office presence. You’ll need them to stay motivated to maintain security, optimal technical performance and responsive service.
🏆 Get creative with rewards — given inflation, covering a month’s worth of groceries can mean a lot. Surprise people quietly with things like gift cards and loudly with mentions on company-wide channels.
And be open to picking up new talent that might be on the market and ready for a different set of challenges — and better values! (Read more here.)
Don’t be tone deaf.
Be extra careful about how things can be perceived. Fancy management retreats and companywide blowouts aren’t cool now if people are getting laid off soon or operational budgets will be cut.
Be sensitive to the situations of your team members, some of whom may be suddenly struggling financially or concerned about their futures. It’s easy to lose perspective when you’re distracted and rushed by this volatile environment. This is when the haves and have-nots of RSUs, special perks and bonuses get exposed and people get resentful.
We saw this get ugly in early days of the Great Recession— and that was before social media was always on and everywhere. You can’t easily control or mitigate reputational damage in the Twitter age, whether you’re right or wrong. Be aware.
Reach out for support.
Perhaps the most valuable lesson of the pandemic was recognizing the humanity and vulnerability of our work lives. Ironically, we all became more dimensional to each other as we interacted virtually from home.
Open up. Your board members have likely managed through downturns (both successfully and not). Take advantage of mentors and and peer communities for sounding boards and sparring partners.
While many of you haven’t experienced tech in a real recession, you can take the lessons learned from your pandemic pivots to know that you can adapt — yet again.
What’s the best advice you can give others in managing through downturns? What’s the best advice you’ve received?
Bonnie Ravina is an Operating Partner at Ring Capital, focused on US market entry and go-to-market strategy and the founder of Full Circle Communications, a boutique focused on GTM fundamentals for B2B tech. She’s lived through enough down cycles to preach that a commitment to basics (strategic positioning, customer engagement and authentic culture) makes the difference in survival and success.