Founders are certainly no stranger to uncertainty, and given all the unsuspecting challenges that can come with being an entrepreneur, sometimes that’s a good thing. The ability to anticipate turbulence and adjust before it ruins your startup funding plans can set your company apart from the competition in the short run, and set it up for success in the long run.
The current economic conditions are 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. If you’re a Founder that need startup funding to accelerate your growth, that can be a major problem.
Even if you’re considering alternative capital options like online lenders, crowdfunding, and revenue-based financing (until you meet the requirements for VCs), there are still certain stipulations that you’ll need to meet to be successful. Regardless of how you plan to do it, your business has to be solid to get startup funding from any reputable capital provider.
Feeling overwhelmed? Here are three steps to best position yourself to take advantage of all capital options, hit growth milestones, and maximize future valuations, even amidst imperfect and uncertain economic conditions.
1. Track KPIs and Translate Them into Action Plans
The great Peter Drucker once said, “What gets measured gets managed.”
Monitoring your key performance indicators (KPIs) is important when seeking startup funding because it helps you know what you need to act on.
But don’t just ask yourself if you’re measuring KPIs, ask yourself whether you’re measuring the right KPIs – that is, the metrics that are actually leading indicators of your performance.
Most Founders in the market for startup funding 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 larger business outcomes. That is, it’s important to look at the bigger picture to make sure your assumptions still hold up.
For example, you should ask yourself: 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 before a startup funding round. When you do this you will minimize the risk of being surprised, and even in the event that something unexpected happens, you will have options, rather than being backed into a corner.
2. Manage Your Expenses Relative to Revenue
In between startup funding rounds, managing your expenses relative to revenue is important, and 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? Unfortunately, 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, then you won’t be able to scale your way to a place where they do.
Instead, 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 Future Startup Funding Rounds
Focusing on the fundamentals doesn’t just mean tracking the right KPIs and recognizing how they impact your bottom line. If you want to position yourself for startup funding, you also need to know 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, it could be 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. And 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 look for when handing out startup funding, but they’ll likely translate to steady growth and expansion.
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 startup funding they need to fuel their journey. Put in the work, grow, and maximize your valuations so that you can grab hold of the startup funding you need from VCs and alternative capital providers.