Founders aren’t strangers to uncertainty, and sometimes that’s a good thing. The ability to anticipate turbulence and adjust before it ruins your business plans can set your company up for success in the long run.
The current economic downturn is a perfect example. Whether you expected the current market downturn or not, the fact is it’s harder to secure venture capital now than it was last year. For startups that need funding to accelerate growth, that’s a problem.
Even if you’re considering alternative capital options like online lenders, crowdfunding, and revenue-based financing (until you meet the requirements for VCs) you’ll still need to meet requirements. Your business has to be solid to get funded from any reputable capital provider.
Here are three steps to best position yourself to take advantage of all capital options, hit growth milestones, and maximize future valuations.
1. Track KPIs and Translate Them into Action Plans
Peter Drucker once said, “What gets measured gets managed.”
Monitoring your key performance indicators is important because it helps you know what to act on.
So ask yourself whether you’re measuring the right KPIs – that is, the metrics that are actually leading indicators of your performance.
Most startups are good about tracking their core metrics, especially in the short term: daily traffic, weekly trials, monthly sign-ups. But it’s just as important to occasionally step back and make sure those metrics are tied back to your business outcomes. That is, it’s important to look at the bigger picture to make sure your assumptions still hold up.
What impact are these metrics having on your revenue growth? What is your customer churn? Is your pipeline big enough to actually meet your growth milestones? What are the acquisition levers you can pull if it’s not?
You want to monitor things frequently at both the micro and macro level so that you have time to make decisions. When you do this you will be surprised less often and if something unexpected happens, you have options rather than being backed into a corner.
2. Manage Your Expenses Relative to Revenue
Managing your expenses relative to revenue could mean making hard decisions when you need to. As an example, you may have envisioned hiring and expanding into three new markets this year, but your KPIs indicate that it’s not time to make that move.
You could decide to forge ahead anyway, hoping the new markets will make up for – or increase – the lower-than-anticipated revenue.
The reality? New markets take time to develop. And if your growth is flattening in already successful markets, there’s probably a reason – a pandemic, for example, or tightening belts from fear of a recession – that impacts possible success in new markets, too. If your unit economics aren’t working now, you can’t scale your way to a place where they do.
Get back to the basics. Look at your spending, look at your revenue. Make the informed and sometimes tough decisions to get your numbers into an appealing place relative to the market you’re currently in. From there you can make smart decisions on how to continue to expand without breaking the model.
3. Focus on the Fundamentals to Plan for the Future
Focusing on the fundamentals doesn’t just mean tracking the right KPIs and recognizing how they impact your bottom line. It also means knowing how you and your team work – and what you need to succeed – so you can plan for the future.
It’s easy to assume capital equals success. But that’s an oversimplification and in many cases a fundamental misstep.
Success is much more dependent on how you use that capital. And that means you need to plan…
- For success.
- For breaking even.
Remember the Pareto Principle: 20 percent of your effort yields 80 percent of your impact. That 20 percent is your fundamentals.
Focusing on your fundamentals requires being disciplined and not searching for solutions in need of a problem. One might react to leveling growth by scrambling to enter new markets when you are not ready, which could diverge from the interests of your actual customers. Instead, focus on the needs of your core market and how you can continue to create stickiness, resulting in additional revenue from your current customer base.
Guy Kawasaki famously talks about this focus in the earlier days of Apple (i.e. pre-iPhone) to turn it into the brand so many aspire to be. There are likely pain points and features you have still yet to uncover if you only listen deeper. Find out why customers are churning. Get detailed on your closed-lost analysis. Use that to guide the future before you start chasing the unknown.
These kinds of changes won’t directly lead to the exponential scaling that VCs want to see today, but they’ll likely translate to steady growth and expansion.
Conclusion
In the end, the retreat of venture capital dollars doesn’t mean your business is doomed. Those founders who are willing to focus, fine-tune, and boost their business strategy can find the funding they need to fuel their journey. Put in the work, grow, and maximize your valuations so that you can grab hold of the financing you need from VCs and alternative capital providers.
