In An Uncertain Market, Survival Mode Is Not Your Only Option
Originally posted on Crunchbase
Despite small glimmers of hope, the market turnaround has not yet materialized, putting startup founders in a challenging position as they decide how to optimize resources.
The vast majority of the founders I talk to are focusing on slashing costs to extend their runways — they’re in survival mode. While this is certainly the default option, there are drawbacks to it, and I’m not seeing enough founders pushing to consider the viable alternatives.
Survival mode
In times of uncertainty, it’s a natural response to want to play things conservatively. Slowing expenditures and even cutting staff to add six, 12 or 18 months of runway may seem like the way to accomplish that aim.
Trouble is, at that point you’re trying to time the market so it turns out that what you’re actually doing is something of a gamble. Maybe you’ll be able to wait things out and still have enough left in the bank to come roaring back to life when markets turn around, making a fresh fundraise more feasible.
But maybe you’ll just wind up fizzling out.
Here’s the thing: Not only does your bet on the timing of the market rebound need to pan out, you’ll also need to have enough resources left to ramp back up into growth mode, develop some traction, and then hopefully be able to impress enough VCs to raise that next round. So long as you’re taking risks like this, you should also consider a bolder play: growth.
Growth mode
Sometimes it pays to be contrarian. While nine out of 10 startups go into hibernation, there can be big opportunities to conquer your market vertical. Look at your competitors. Are they actively marketing? Are they winning new customers? If not, this could be your chance.
Rev up your sales and marketing engines, ship new products, bring in some new customers and boost your ARR. Yes, there are costs involved, but pull this off, and your company will be far more attractive to VCs.
Right now there are far too few startups still growing, and if there’s anything that VCs like it’s growth — even better if it’s 2x to 3x ARR growth, and you’re taking strides to corner the market you’re in.
Bootstrapping mode
The final route that’s an option for some startups is to dial back on the costs of hyper-growth and focus on developing an efficient, profitable business.
I’m always looking for startups with business models that actually work. At the early stage so many companies are trying out ideas that may never have a path to profitability.
Granted, if you’re still small and profitability doesn’t mean eye-popping growth, you should temper your expectations of raising a fresh round of funding.
On the other hand, if you’re trying to play things conservatively, bootstrapping can be an even less risky path than going all the way into survival mode. When you’re profitable, you don’t need to live off of your runway.
The question really is: Will you be able to remain competitive when the rebound spins out freshly funded, hyper-growth-chasing competitors?
Each of these paths has its share of risks and upsides. Which one is right for your startup is contingent on a number of factors: How much cash you have in reserves, what your competitors are doing, what your path to profitability looks like, and much more.
The bottom line is that founders do have options beyond cutting costs and extending their runways, and they’d be wise to consider them.