During challenging times like we currently have, startup founders must adapt their planning for the coming years more than usual. To increase your chances of success, you need to reassess your product’s DNA and focus on execution.
The last years feel like a never-ending rollercoaster. In 2022, the world did not only return to normal, but the pendulum swung completely: Markets went from panic caused by the COVID-19 pandemic to a ‘the-sky-is-the-limit’ momentum for some tech businesses, severe economic uncertainty, and now likely a recession. 2020-22 might just have been the most challenging time tech entrepreneurs have faced since the advent of the internet…
Volatility will continue to define the following months. Accordingly, many venture investors are asking themselves two questions today when looking at new opportunities and when assessing the outlook of their current portfolio companies. Founding teams should ask themselves these questions just as much.
Question 1: Is this product a must-have or a nice-to-have?
One thing is for sure – budgets are down everywhere. If you are a consumer business or an enterprise play, everyone is spending less. Now, investors are trying to figure out: ‘Is this product a nice-to-have or a must-have?’ In other words, do you believe your product or service is critical to (potential) customers? Or do they simply ‘appreciate’ it and churn when things get hard? In times like these, assessing the ‘DNA’ of your product is actually more straightforward than usual. You simply have to check if people keep buying even during economically challenging times like these.
The winners of the current market are the non-discretionary goods and services. These are the products that people cannot delay buying as they are essential products. The must-have products continue to sell (nearly) as well as previously. As a B2B startup, you might have to decrease prices slightly to win a deal – but your product is so critical to companies that they need to keep buying from you. Just make sure to be creative and structure new deals in a way to catch the potential pricing upside later on. But, right now, the goal is to sell to as many as possible! The lost upside will eventually come back to you. In the end, the best way to test whether you have a ‘must-have’ product is to threaten to take the product away from your early users. If they don’t riot, you might want to think it over.
Even though the conditions for fundraising have become harder as well, companies with must-have products should stay aggressive when it comes to closing new investments. If you have raised funding before, have an open and ongoing discussion with your existing investors in this regard. Good investors should give high-performing founders the confidence to continue executing even when times are tough. Great early-stage companies need the confidence to keep hiring so they can catch their market demand. For these businesses, fundraising with new investors should be less of a challenge than for startups with ‘nice-to-have’ products. ‘Recession-proof’ businesses are highly regarded by VCs these days.
Question 2: Will the post-COVID jump continue going forward?
At the start of the pandemic, many were blown away by the accelerated growth some tech products were experiencing. Funnily enough, many that saw their demand vanish during COVID, now experience a similar growth jump. Since early 2022, it is clear that we are back to the ‘pre-COVID trendline’ for the winners of 2020/21. But, as markets opened up again, everyone is looking to get their hands on the products nobody wanted or needed over the last two years. These post-COVID winners see demand exceed pre-2020 levels. For example, think of the pent-up demand in hospitality hiring, real estate in major cities, traveling, etc.But, after the first excitement of being back in the game, it is essential to understand that this jump is probably temporary and that we need to budget 2023 accordingly. Let’s enjoy it while it lasts, but be ready for ‘regular’ times again. Whatever your situation, the good thing is that everyone has started to adapt and do more with less. Everyone, COVID and post-COVID winners, have gone through budget cuts over the last two years. As a result, most entrepreneurs tell me that they feel much better about their organizations now. In some ways, it can sometimes be easier to build great companies in down markets. Greatness in execution stands out more again and does not get drowned out by the inevitable over-funding of one’s competitors, which we saw happen in recent years.
→ Curious to dive deeper into this topic? Read the article in full length on Yannick Oswald‘s blog ‘Opportunities Everywhere’.
