Are You Prepared to Buckle Down for the Long Term?
“Before you thrive, you have to survive.”
"The boom times of the last decade are unambiguously over." Lightspeed Venture Partners
“Before you thrive, you have to survive” - this is the advice that Michael Seibel, Y-Combinators Managing Director, gives to portfolio companies as the best way to get through the current downturn. Start-ups need to immediately take emergency action for what could be the sharpest market decline in the last decade.
Most funders are telling their portfolio companies to:
Prepare for a prolonged funding drought
The past decade has been somewhat of a utopia for founders and funders. Founders have enjoyed a plentiful supply of needed capital at each stage in their growth journey. Despite this advantage, 38% of startup failures were caused by running out of cash or failing to raise new capital.
Clearly, the bull market era is now over. Funding for startups is down by around 20% in many sectors. In addition, Federal Reserve actions are making capital more expensive and putting additional pressure on companies to preserve their cash.
So, what will be the new reality? What new calculations and adjustments must be made to survive and ultimately thrive? It’s becoming clear that the new entrepreneurial masters to be served are capital preservation and capital efficiency.
This objective has long been in play, but the penalty for not doing this has never been as painful as it is now. Suppose you cannot find the means to utilize your available capital efficiently. In that case, your runway will run out, and few, if any, funders will emerge to bankroll the next stage in your business lifecycle. So, is all lost? Are you in great peril? Not necessarily. You might even be better off if you can create a healthier way to grow while keeping a sharp eye on capital efficiency. Here is what you could achieve even operating in lean mode:
Your burn rate won’t explode, consuming your precious capital
Scale up accurately and economically while staying under complete control
Reduce hiring issues: miss-hires, turnover, performance short-falls
Stay focused on mission and market as the company infrastructure evolves
Great objectives, but how can this be achieved on a limited budget without hampering growth or threatening positioning in a more competitive funding environment? Here is what is recommended to overcome these challenges:
Collaboration with a startup-oriented business process services provider
Adding expertise in standing up and scaling up operations cost-effectively
Gaining demonstrated domain expertise at every stage of business growth
A comprehensive solution that integrates smoothly with your organization
Performance-driven objectives and service level metrics
Since it’s now clear that you’re going to have to continue operating for several more years on existing funds and, at the same time, continue to grow, it’s time to act. CEOs who are decisive now and make critical changes to their business model and processes will emerge in an even stronger position when market conditions improve.