Economists, fund managers and pundits have been calling for the funding bubble to pop for many years – yet, it doesn’t seem like it’s going to happen anytime soon. As long as governments around the world are complicit in keeping money cheap and abundant- it’s definitely more attractive for investors to deploy their capital into startups and the stock market.
BUT, what should you do if you do if you run a startup – and agree with these pundits that the bubble might pop soon?
1) Raise more, and spend mindfully
It goes without saying, if you need to weather a storm, you will need to raise more money than needed. If it goes downhill soon enough, funds will not come knocking at your door. Also, good luck to you if your investor gives you funding in tranches – and its based on traction!
How much more should you raise? The answer is – as much more as you can! Start speaking to your key investors, and lock down promises on paper if you need. Terms will be soon to change if the market takes a turn.
Additionally, spending mindfully is perhaps the best strategy – conserve cash, and don’t hire excessively or invest into black hole projects. Being a cockroach is better than being a unicorn. You will sacrifice growth, but if your investors understand and are supportive – this could be the best thing for you (and them).
2) Sustainable growth and strategies
Start planning for your startup to be self-sustaining. This means, it has to start booking revenues (even better if it can book profits!).
Drop aggressive growth plans, subsidies and multi-country launches if you know you’ll be low on cash. Stop with the mindset that you could always raise more cash from somewhere. If the market dries up, it’s going to be near to impossible.
However, if you find it difficult or next to impossible to be booking revenues, start cutting down on your expenditure. No more excessive entertainment tabs, outings, hiring that handsome or pretty interview candidate just because he/she seems smart and could be of “help” to your company.
Being sustainable means doing cost planning ahead of time. This includes writing down plans for hiring, salaries, and running costs. Only by having an idea how much you are burning each month will help you manage your startup’s runway – and determine its survivability if the shit hits the fan. Overall, it’s always good to take your growth plans down a notch in periods of uncertainty – but this depends on your investors as well.
3) Value your team
Companies will come into crisis one way or the other. Running out of funding is quite common – but running out of trust from your team, spells the end.
How to “value” your team? For one, be honest about the company’s situation. After all, they joined knowing it is a startup. If it does not make money, or raise any money, it will be eventually shut – they know this! So, don’t shut them out if you have a crisis. Talk to them, and get their buy-in always.
You may also want to differentiate your “core team” from your “extended team”. In difficult times, you may to need to let some of them go, but never ever touch your core team. Protect them, watch over them, and together you shall hopefully pull through whatever is thrown at you or your startup!
Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at [email protected].