Markets around the world are seeing declining or yo-yoing trends. There is a war being fought on inflation by the central banks around the world. As a result, interest rates are spiking up across countries.
This has gotten many dormant bees in our bonnets to start buzzing. Founders have some genuine concerns.
When will we get our next round of money? Or worse still, WILL we at all get our next round of money?
Even if we get it, will we get the high valuations we used to get in the recent past? But hey, what if we have to dilute more? So, do we really want that money if it means we have to dilute bigger? Should we continue to seek funding? Should we ourselves decide to take the money later when valuations will start easing up after this war on inflation gets over and the interest rates start declining?
What does all this mean for us now?
- How will we finance our cash burn?
- Should we cut spending?
- Should we stop hiring?
- How can we start growing revenues?
- Do we actually have to turn profitable BEFORE we grow revenues and prove scale?
Downturns can be opportunities. It is useful to remember the famous cliché that Google was founded during a downturn. Not just Google, many other marquee names made their entry during recessions! General Electric, General Motors, IBM, Disney, HP, Hyatt, FedEx, Microsoft were all started during recessions. Even Facebook and Salesforce were started right before a recession. There are some more iconic names like Netflix, Airbnb, MTV and Revlon in this list too.
The downturn will be behind us eventually. How do we ensure our company remains viable till the downturn gives way to the inevitable upturn? What should we be doing to stay alive till then?
Here are some quick tips that many investors have already started giving their founders.
- It is safe to assume that things won’t get better… at least, in the short run.
- Prepare for the worst.
- Assume you are not going to get further rounds of funding immediately.
- Assume you won’t get big valuations even if you get money.
- Figure out how to stay alive with your own money.
- Make that dollar in your bank last longer.
YCombinator has given an excellent framework for their companies. Are you default alive or default dead is what they want their founders to ponder. Very simply put, default dead companies are companies that cannot grow to profitability without the next round of funding. Default alive companies are companies that are growing fast enough on revenue even though they may be cash negative today. They have enough money in the bank.
- So, if you are default alive, you need to grow your revenues first while still cutting costs just to make sure you don’t run out of cash before you turn cash positive.
- If you are in the default dead category, you need to cut costs first while still growing revenues just to make sure you last long enough till your next round can materialize.
Read the above two statements. Are they any different really!!
Lack of planning and high burn are bad enough during good times. During bad times, they are the kisses of death.
Old fashioned unit economics has never been more important. Are you unit economics positive? Or are you trying to get there but the goalpost seems to be elusive like a mirage? Do you need to grow in cash burn to grow revenue? Or, perhaps, should you shrink now to conserve your powder so that you can grow later? What is more important to you? Now, or later?
If you thought the above questions were hard, here are some even harder ones
- What do you want to build? Do you want to build an institution or build your valuation? Smell the coffee NOW!
- Will what got you here get you there?
- How do you compete with too many competitors in your space, all doing pretty much the same thing? All along, you were thinking that out-spending your competitors in terms of cash burn is going to give you the edge over them. But not anymore! Shed some and move to your core!
- If equity capital is going to be expensive but you still need cash, how do you make your business debt worthy as the only way to grow?
- Just getting professionals on-board won’t solve the business challenges. With easy cash like before, that was an option, at least. But what do you do now when money is going to be tighter?
- Most of the cash went in building Tech often forgetful of the fact that it was just an enabler and not the business itself. When money is going to be tighter, how do you shift focus to look hard at yourself and accept the business you are in?
- Is your cash burn an investment? If yes, what is that investment worth? What are you getting for it in return? How do you measure it?
There are enough people talking about how to raise funds and how to prepare for your fund-raise pitches. Are there enough people telling you how to make your dollar last longer? How to make your company unit economics positive? How to identify which activities to focus on? Driving which KPI is going to be important? Which cost items to keep an eye on? And, will they hand-hold you through all these steps?
These are not easy questions to answer all by yourself. You need help.
This is how we can help.
Here is a brief list of clients we have helped and how:
- A marquee funded Agri-mechanization start-up – Sharpened the business model by altering/augmenting their product portfolio after helping them with an in-depth understanding of the unit economics of their various offerings. Hand-held them through the execution. Helped them through various rounds of fund-raise.
- A well-integrated and well-funded Agri-tech start-up – Designed their product portfolio and go-to-market leveraging their sourcing and supply chain strengths. Front-ended the execution of the strategy by on-boarding the right talent and setting up systems and processes to execute on the strategy.
- A unique grass root organization – Donning the hat of executing responsibility, transitioned the company to a self-sustaining unit economics. Having demonstrated the sustainable business model, helped the organization in their growth design and building capabilities in them to run for rapid growth. Managing the investor in the transition, by delivering on results and making sure investments are directed to the right areas.
- A multi-speciality large hospital – In the initial phase we brought the promoter’s idea to life, by planning the green-field project, securing finances and project managing the commissioning of the hospital. Playing the role of Virtual CFO we are currently engaged in building the right processes and systems for running a well-oiled hospital operation.
- An electric vehicle start-up – Our engagement started with increasing run-way during peak Covid time. It has subsequently moved on to far many more high impact areas. The wide areas of work involved building an application for field management, help in transitioning to the new investor and putting in place governance processes.
You can benefit too. Email us at email@example.com.