While scouring the web this week, I clicked past tons of articles about the coming startup crash. Here is a good example from Wired. Most of these articles cite on-going supply chain disruption, inflation, or eroding consumer confidence as the causes of the crash. (January 2023 update — the crash is most definitely here.)
These are all reasonable explanations, yet they ignore the most obvious one: outlandish valuations. Is a startup with $5M in revenue worth a billion?
No…and to think otherwise is outright delusional insanity. However, I do not fully understand the absurd valuation math of Silicon Valley. It seems that if an investor believes a valuation is true, then it is.
Keep in mind, this is the place that minted valuation absurdities like Theranos, Webvan, and (here is an oldie but a goodie) Cue Cat. Yes, that Cue Cat. In fairness, for every Cue Cat that Silicon Valley funded, there are dozens of genuinely innovative companies that contribute to the forward progress of humanity.
Whether it is absurd valuations or the lack of baby formula, a reset for startups seems inevitable. So, what kind of evasive maneuvers can startups take to weather the coming dark times?
Vision
To paraphrase the great philosopher Freewheelin’ Franklin: vision will get you through times of no customers better than customers will get you through times of no vision.
Vision is a description of the future. A well-defined, well-articulated bright future inspires hope. Hope that the company will successfully navigate through the darkness. Hope that rewards are attainable. Hope that all the struggle, toil, and stress will be worth it and have meaning.
To paraphrase Jyn Erso, startups are built on hope.
To promote a brighter future, startup leaders must emphatically promote the company’s vision. To do that, answer four questions:
- Why does the company exist?
- What problem(s) does the company solve?
- What are the values of the company and its people?
- How can people find meaning and relate to those values?
- Where is the company going?
Do not make your vision about money — ever. Money is a weak motivator. Moreover, nobody cares about making money for the investors or founders. Vision must be about something people can genuinely care about. Money must be the result of staying true to the company’s vision, values, and mission.
Vision gives people purpose. Without purpose, employees invariably ask themselves “why am I here?” It does not matter how smart you are, or how many big shots you know, or how much money you have in the bank, without purpose people have no reason to stick with the company.
Vision will get you through the downturn. However, words alone will not solve everything. There are some other ways to stay on target.
Automate
One of the many ways we sap meaning from people is to put them into roles with repetitive, boring work. Automate repetitive tasks and promote the people into more meaningful work.
The mere act of shifting people’s focus from performing a repetitive task to automating that task, provides a more satisfying job. Moreover, one a task is automated, your products and services become more reliable, scalable, and valuable.
Put that Coffee Down
Maybe you need Alec Baldwin to yell this at you: Always Be Closing. You need to sell, sell, and sell some more. To do this, you must arm your sales team with the resources they need to effortlessly demonstrate your company’s value.
For example, all salespersons must be able to expertly demo your products at a moment’s notice. If you sell services, you must have a library of sample output (reports, content, etc.) that demonstrate your capabilities and expertise. Demos and samples are effective ways to communicate your company’s competitive advantages.
In my experience, the only way out of a hole, is to sell your way out. There are only so many cuts you can make to staff or spending before the company becomes ruined. Investing in sales and marketing is the ticket out of the dark times.
However, before you charge ahead, be clear with your sales and marketing teams that results are the only metric that truly matters. Effort is expected, but results are what they are measured on.
Product Improvements
You know the next valuation is going to be low(er). So why not actually improve your app and have something more valuable? Downturns are an excellent time to clean up all the crap in your app that is holding you back. Quit dickering around with every dumb customer feature request and go back and fix the big stuff.
Emerge from the darkness with products and services that are more valuable, and therefore can command reasonable valuations.
Repackage
When times are tight, buyers go bargain hunting. They expect every app, service agreement, and subscription to go farther, offer more, and solve more problems. If you are a special little unicorn app that only works in a narrowly defined set of requirements, then it is time to repackage yourself and broaden your appeal.
Build packages that solve entire business problems all in one. Moreover, reprice everything into monthly subscriptions, usage-based billing, or extended terms to make payment easier on customers.
Partner Up
Rather than be a lone sinking ship, partner up with other sinking ships. This also can help with repackaging. If you can bring partners to the table that fill gaps in your offerings, then you have more to offer.
However, before you sign up a bunch of partners, make sure you understand how each partner makes money. Each partner must be able to see how they can benefit, otherwise it is not a real partership.
However, be honest with your scale. A $5M startup is not going to have the market reach of a titan like Cisco or Microsoft. If you partner with a bigger player, then you need to accept the inherent unequalness of the partnership.
Be Brutally Honest
Unfortunately, tough times mean doing more with less people, resources, and time. Layoffs, cutbacks, and delays always feel bad.
Do not sugar coat the unwelcome news. This only makes you look foolish and desperate. Also do not make it about you. Be honest about the changes. Show remorse but show resolve as well.
The intent is to show you care about people, but you are committed to staying the course and seeing the bad times through. This is why vision is so desperately important in bad times. Layoffs and lost deals are the ideal time to double down on the company vision, values, and mission. It pulls everybody back together and recenters them on why the company exists.
Conclusion
Do not give up. Downturns are inevitable. Yet, nothing bad lasts forever. Startups can survive (even thrive) in bad times. Moreover, as the Wired article points out, troubled times can mint stronger companies. The key to coming out of this storm is keeping your eyes on the prize.
To quote one of the greatest philosophers I knew: perseverance furthers.
