4 timeless strategies that keep your business moving through an economic downturn
Greg Smith, Chief Investment Officer, TIMIA Capital
In my industry, I am fortunate enough to meet inspiring entrepreneurs every day. I always admire their willingness to shoulder the risks involved with leading a fledgling company. Their belief in their vision somehow outweighs their fear of losing all that they’ve put on the line. They never waver — despite the sobering fact that half of all startups fail within five years and 20 percent don’t even survive one year.
During the recent SaaS North event, I met with many startup CEOs who bucked this trend and I asked them all the same question — “What do you wish you could tell your past self about your early startup strategy?”
Here’s a summary of four of the learnings mentioned most frequently:
Half of all startups fail within five years and 20 percent don’t even survive one year.”
1. Growth is something you can — and should — proactively manage
I’ve seen many great startups die at the hands of unsustainable growth. The most exciting thing about technology, particularly SaaS, is that you can actually control your metrics to ensure sustainable growth. Smart startups get their metrics in order in the early days so when growth happens, it happens in a concerted, thoughtful manner.
You have the data and metrics at your disposal and you can move the dials to determine whether you want to grow at 30 percent, 40 percent, 100 percent, and so on. Everyone has a different idea of the top metrics to track but generally customer acquisition costs (CAC), customer lifetime value (CLV), average contract value (ACV), and annual or monthly recurring revenue (ARR or MRR) are good starting points.
With these metrics figured out, you can now ask yourself, “What do I want to do? Do I want to build a unicorn or do I want to build a great 50 million dollar company.” Once you’ve decided on a growth strategy, you can start moving things around and monitoring the metrics to help you grow at your own pace.
Customers don’t buy from you because you achieved a successful funding round — they buy from you because your product solves their problem or improves their situation.”
2. A strong value proposition is more important than successful funding rounds
Customers don’t buy from you because you achieved a successful funding round — they buy from you because your product solves their problem or improves their situation. It sounds so straightforward but so many startups get caught up in the heady funding dance that they forget about the fundamentals of delivering value. According to a recent study from CB Insights, the most common reason startups fail is that they don’t meet a market need. Some startups develop a solution to a problem that just isn’t big enough or can’t be solved in a scalable way.
Focus on your value proposition — your promise of the value to be delivered to your customers — and ensure you have a good product-market fit, you’re different enough from existing offerings, and there’s a market big enough to sustain your investment.
3. Choose an investment strategy that aligns with your vision
For many reasons, founders are not as prudent with their investment strategy as they should be. Mostly because they are so consumed with a million other business challenges that they simply think, “I just need the money to do it and I don’t care who gives it to me.”
This is a huge error. It can lead to founders losing control of their company — in extreme cases we’ve seen owners give up 90 percent of their company to venture firms only to exit the market underwhelmingly after a few years. Be careful with your equity, especially in those early days. Venture capital is not the only option. Research alternative funding sources that get you the cash you need and align with the outcome you want for your startup.
The importance of founder-investor alignment cannot be understated. Choose an investor that’s experienced in your industry so they understand your vision and the costs, time-to-market, and risks to associated with it. Experienced investors can also introduce you to new suppliers, manufacturers, customers, and open up new distribution channels for your product.
4. Do your research on distribution partners and channels
Staying wedded to a single distribution channel can be detrimental to start ups and impede growth. Partners can help you open up new markets and make money at scale. Building a company around a major player’s ecosystem — like Salesforce, Xero, or Quickbooks, for example — can be lucrative but it’s not easy (or cheap!).
The earlier you can show metrics like ACV, CAC, etc., the more likely you can have a strategic conversation with someone like Salesforce. Talk to their customers, find out what pain points they have, and try to solve one of those problems to get them to notice you.
The channel model can take 18–24 months to show a return on your cash investment.”
Be aware of the costs involved with playing with these big guys — I call it a tax. It’s wise to remove this tax from your revenue to show a more accurate gross margin. Finally, don’t underestimate how long it takes these relationships to deliver a return. The channel model can take 18–24 months to show a return on your cash investment.
These are just four of the many pieces of advice that can be gleaned by getting out there and talking to people who’ve been there, done that, and given away the clever marketing t-shirts. I look forward to your thoughts on them.