[Guest article by Samar Singla, founder of Jugnoo]
The funding party that has been going on for quite some time is getting over, a little more dramatically than how most people expected. Yes, the tech bubble is popping! Every single stock market is in a free fall and this will lead to the tech bubble bursting.
This is how it will happen:
- The angels will be the first to stop since they are the most emotional of the lot.
- VCs will start to preserve cash for their investee companies and be very cautious about new investments.
- Late stage deals actually might get better since public markets are pretty risky and late stage private companies are actually a better bet. But generally, valuations will suffer.
This gets me to the point of the article- what to do when a bubble is popping and you are in the midst of it.
Assess your cash situation
Make an estimate of the runway you have. You should start adjusting your burns to prolong the runway to at least 18 months in my opinion. If that is not possible, let’s get to that in the end.
Focus on core, cut the flab
When funding is cheap, experimentation is not a bad idea but when money is scarce, be super focused on your core problem statement and don’t spend resources and bandwidth on non-critical stuff.
Fast growth vs fundamental growth
Growing fast makes sense when there is a lot of competition, funding is cheap and the space is such that winner takes all. You can always get the fundamentals right later when you are the clear leader of the lot and funding starts drying up for competition. But when funding environment is bleak, focus on growing sustainably. Speed doesn’t matter as much as the user experience and getting repeat usage. You will hit the tipping point a little later, but it will come if the user experience is great.
Every revenue stream counts
One thing fast growing startups tend to ignore are small revenue streams. These revenue streams are often non core product/service offerings like bulk sales, white label offerings, enterprise sales etc. You can ignore these when you are growing very fast and don’t want distractions but during a downturn, going slow and building revenue streams that will last a rainy day goes a long way.
Build a sales driven company
Sales solves all problems, even a bubble burst. Sales driven companies have sales in their DNA. Many heavily funded companies I see just try to throw money at every problem and hope it gets solved. This becomes engrained in employee behavior and is almost impossible to change when throwing money at problems is no longer an option. Even when the environment is bullish, this is something you should always be very cautious of but it is almost a must during a bubble burst.
Exits are generally a good option just when a bubble is starting to burst and you are a super early stage company. There are a lot of companies flush with cash and your company might be a strategic fit for one of those companies. If you choose to take this route, act fast. Many companies will shut down/sell out pretty fast in every downturn and try to exit fast if you don’t enough runway and are not sure of the exact direction your startup is taking.
Lastly, I feel that all the great companies have endured bubble bursts and survived. That is the time that teaches one to build a business rather than just growing by burning VC cash. If you act fast, have a clear strategy, play your cards right and can survive the winter, you can be pretty sure you will be in the big league when the next bull run starts.
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