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How Startups Can Survive—And Even Thrive—In A Slower Economy

How Startups Can Survive—And Even Thrive—In A Slower Economy

Tech venture builder. Co-founder and CEO at RAVIN.ai.

Rising interest rates, the war in Ukraine, post-Covid apprehensions over economic performance—the list of issues making investors nervous is a long one. This is a far cry from the record investments VCs made just a year earlier. But with the right plan, startups can continue innovating and raising new money.

When times are tough, the tough get going, goes the old saying, and that adage is quite appropriate in today’s investment environment. Money may be harder to come by, but startups need funds as much as they ever have—and they can use the assets and capabilities they possess to get that funding. Investments are not going away, and VCs will continue to look for opportunities. Startups that know how to take advantage of those opportunities are the ones that will prosper. Investors will be looking for signs that startups have what it takes to weather the storm; the more startups can demonstrate that they have those capabilities, the more likely they will be to pass investment litmus tests.

Tweak Your Offerings

Existing customers and clients are probably the easiest to sell on new products or services that can solve the problems they are seeking solutions for. It’s a lot easier to reach people you already work with as opposed to recruiting new customers. To get that business, startups can tweak or pivot their offerings to help cover those needs.

Companies seeking to pivot need to start with market research to ensure that their new offering covers market needs and then plow resources into developing technology to meet those needs. Most investments will go into new product offerings rather than into expanding a marketing team. These new products and services will enable startups to expand their offerings and revenue streams while reducing the cost of finding new markets and customers. Pivots like these enable startups to meet more of their clients’ needs, also allowing those clients to save on time and the resources they would have otherwise spent on finding the solutions they need.

Clients that have already worked with a startup are likely to be quite amenable to these pivots and new offerings; they, too, are coping with financial issues in the current challenging environment and are looking for innovative solutions as well. Furthermore, if they can get them from people they know and trust, then all the better.

History is replete with examples of successful pivots (from Paypal to Play-Doh), and while not every pivot is assured of becoming the next Instagram (another pivot success, which switched from a bar check-in service to the photo and video social sharing service it is today), meeting current market needs could enable startups to survive future challenges.

Consider A Strategic Investor

VCs are far from the only source of investment money; startups have for years partnered or worked with strategic investors, whether directly connected with larger corporations or investment subsidiaries that seek out opportunities for their sponsors. In the current environment, strategic investors provide a good opportunity for startups; with less VC money to go around, strategic investors see an opportunity to acquire good technology that their parent organizations can utilize to boost their own products and services. Savvy startups that can provide the assistance needed can develop mutually beneficial relationships with those organizations.

With that, startups that seek out strategic investors need to realize that the funding rules for those kinds of investments are somewhat different than those for VC investments. Working with a strategic investor may limit a startup’s ability to sell its technology to competitors of an investor’s parent organization—and the company may seek to direct research and innovation to areas that will benefit them. Before working with strategic investors, startups need to consider the issues, but if they can work things out, they will find that a strategic investment could help them design better products and services, as well as boost investment opportunities down the line. A startup’s association with a larger, successful tech firm can do wonders for its reputation among investors and potential customers.

Double Down On Your Own Talent And Help Them Grow

Although it can be tempting to save money by cutting the labor force, this is the wrong time to do so. Startups are supposed to innovate, and when investors see a company shedding talent, they lose faith in that company’s ability to innovate and grow. Founders need to keep the momentum moving, pushing innovation, building the customer base and increasing revenue—and to reach those goals, they need a strong team to power growth, plowing resources into ensuring that they can retain talent, helping it thrive despite financial challenges.

Good talent is hard to find. The tech world has been, and in many ways continues to be, in the throes of a significant talent shortage, with companies both large and small vying for creative and smart staff. Those let go can still likely find other work, although hiring is starting to slow. Startups that let employees go now may find themselves regretting it. When the investment climate improves, they may find that it’s a lot harder—and more expensive—to hire than it was to fire. In fact, if a startup utilizes outsourced roles, investing in current organization employees to learn those skill sets and apply them in-house would be a smart move as well.

A slower investment climate doesn’t have to translate to “it’s impossible to raise money now.” Startups that can adjust to changing times—by adapting to market and investment conditions, as well as doubling down on building their technology—are likely to survive, and even thrive, during the current period, emerging even stronger on the other side. Things may be tougher right now, but startups that can prove their worth will be the ones that win.


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