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This year is challenging for startups because of the global economic uncertainty and intense market competition. Scaling a startup in such a context becomes increasingly more difficult. Still, investors are looking to get in on the ground floor of the next unicorn.
So, how to handle this storm and make your way through this new bear market?
The industry generally agrees that the go-to strategies for this challenging time are:
- extending their runway
- taking care of their teams and holding on to cash
- focusing on value more than growth
Great companies are born in difficult times
All the great businesses have flourished through difficult times. Google raised its capital after the dot-com bubble, emerged through the downturn, and grew across the competition. Yes, today, startups are in the middle of a storm: inflation rates are hitting all-time highs, piquing interest rates, skyrocketing oil and gas prices, and turmoil in the crypto markets, but with new challenges come new opportunities.
It is essential to keep in mind that the best advice for handling the downturn should be based on the length of your runway and the efficiency of your business.
Scaling your startup based on the length of your runway and the efficiency of your business
The first thing to do right now is to understand if scaling is an option for you right now. This must be done based on the length of your runway and the efficiency of your business.
The runway falls into one of three categories:
- Two years or more
- Between one and two years
- A year or less.
The amount of runway that a startup has will determine its operating plan and how aggressively it can spend – the corresponding strategy for each would be, respectively, “stay aggressive”, “ruthlessly prioritize”, and “time to trim”.
And if it’s a year or less, scaling is not an option for you right now. You might think of significantly cutting costs across various areas — products, R&D, and sales. Focus on efficiency everywhere you can and communicate your strategy to your employees. But remember, it’s best not to leave this to the last minute – the less time you have, the fewer the options available to you.
If it’s a year and more, scaling may be an option for you. Many companies and individuals in the tech community are facing unprecedented and challenging times. However, our industry has seen this before and has come out the other side even brighter. Times will change. The markets and the competitive landscape will look different in the not-too-distant future.
Ready. Steady. Hire!
Early-stage startups can no longer compete based on salary and benefits alone. Instead, hiring managers must convince prospective hires that they will be joining a supportive culture where they can expand their skills while contributing to (and participating in) the company’s success. Therefore, if your runaway still leaves you an opportunity to scale, you’ve got to invest in the earliest hires – so, later, when the crisis is over, you will emerge more resistant and agile from it.
The main goal for the founders and hiring managers is to optimize the recruiting and hiring process, find and develop talent, and uncover some best practices for closing candidates.
The state of the job market is more competitive than ever. There’s a minimal supply of talent and probably the most significant demand ever. Hence, it’s essential to consider how to differentiate and build the foundations and the habits to get talent right in the early days.
That’s why founders and hiring managers should first develop a process that can scale as the team grows, focusing on optimizing the recruiting process, finding and developing talent, and uncovering some best practices for closing candidates.
Founders Should update their mindset and focus on the team
What can founders do? Proactive founders can get in front of the pending turbulent economic environment. They must navigate a fiscal minefield full of paradoxes, such as dwindling runway versus mounting sales pressure or suppliers forcing price hikes while investors push for profitability.
Here are four actions to take immediately:
- Reduce your dependence on external funding
- Re-evaluate every business assumption
- Manage your team’s psychology and expectations
- Obsess over customers and quality.
It’s always hard to be a founder and even harder in this environment. Everyone, from your executives to employees to customers and supply chain partners, is looking to you for guidance and reassurance. As a steady hand on your business wheel, you can put what’s happening into context by being optimistically realistic. There will be tough decisions around staffing, management, and product strategy. Own those decisions and clearly explain the reasoning behind them. Persevere, stay strong, and be entirely up to speed on what’s happening within your organization and your ecosystem. You will get through this.
And here are some tips for startup founders:
- Recalibrate your goals towards a new valuation
- This is not a time to panic – it’s a time to pause and reassess
- If you’re forced to lay people off, do it the smart way.
Bottom line
The downturn can be an opportunity for many companies. It’s an opportunity to re-prioritize and focus energies and resources. And, if thoughtfully navigated, it is a time when companies can distance themselves from their competitors.
Being a private company is a huge advantage in these times. Being “small” is an advantage. As a startup, you have agility on your side. Imagine a different world, plan for it, and execute.
Yes, the business environment changes quickly, requiring a mindset shift. The market is switching from an abundance “bull” mindset to a scarcity “bear” one. And while the businesses are changing their recruiting strategy and cutting their HR budgets, it’s an opportunity for startups to strengthen their team and processes.
And just one thing to remember. The market always functions cyclically. After the downturns and turnovers, there will be a phase of growth and development. So, maybe it’s the right moment to take a chance and convert challenges into possibilities.
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