How Your Startup Can Prevail in a Lagging Tech Economy
How to Supercharge Your Startup in a Lagging Tech Economy
There are so many factors you try to control as an entrepreneur and just as many that are simply out of your hands. Startups and companies often find themselves at the mercy of economic tides and circumstances that may leave them relatively powerless (see Silicon Valley Bank).
The landscape can shift unexpectedly, and navigating a lagging tech economy can be particularly challenging. However, adversity breeds innovation, and there are strategies that can empower startups not just to survive but to thrive in challenging economic conditions. While many might not have seen the SVB collapse coming, that was just one of the many headwinds founders in the ecosystem faced throughout the past year.
After a decade of the “Growth at all Costs” mindset, we’re seeing a shift across the overall sector with companies re-evaluating their growth strategy in favor of a more reliable trajectory. Taking calculated risks are part of any entrepreneurs’ journey, and we spoke to a few founders who shared some of the best tips throughout their path.
Adaptability as a Core Competency
The hallmark of successful startups in a lagging tech economy (and anytime really) is adaptability. Flexibility in responding to market changes, consumer needs, and external challenges is paramount. Startups that can swiftly pivot their strategies and offerings are better equipped to weather economic downturns. This adaptability should extend beyond product offerings to encompass operational efficiencies, cost structures, and marketing approaches.
I’m sure we’ve all heard stories of founders pivoting their Ideal Customer or adjusting an MVP based on outside factors, Covid being one of the most prevalent in recent years. Imagine launching a Consumer-Focused Travel Tech startup during the height of the pandemic? That’s exactly what Brian Lee and Bane Srdjevic did at Roamli, after working on their MVP for 20 months starting in 2018 they finally launched in May of 2020 to find the world completely at a travel standstill.
After speaking to their users and early customers they made the quick shift to focus on supporting local communities and driving traffic/engagement to businesses who were impacted by the pandemic and still face similar challenges to this day.
Focus on Value Proposition
In a lagging economy, consumers and businesses alike become more discerning in their spending. Startups must revisit and refine their value propositions to ensure they address essential needs and provide tangible value. Whether it's cost savings, efficiency improvements, or solving a critical pain point, a compelling value proposition can set a startup apart in a crowded and competitive market.
We’ve seen a lot of teams make the mistake in rushing an MVP or product to market to try and be the first without actually refining the value proposition. You either end up running into a “Blue Ocean” scenario where you need to spend all your time educating your prospective customers, or you’ve created a product that nobody is asking for.
Customer-Centric Approach
Building and maintaining strong customer relationships is crucial not just for reducing churn but creating a strong referral-network. Startups should always invest in understanding their customers' evolving needs and preferences.
This can involve gathering feedback, conducting surveys, and actively engaging with the target audience through various channels. By staying attuned to customer sentiments, startups can tailor their products and services to meet real-world demands.
The best founders’ will wear multiple hats early in their startup journey and the role of Customer Success Manager is one of the most important. If there’s a thing to outsource or delegate out early, it’s not this.
Cost Optimization and Efficiency
This may seem like common knowledge, but survival in a lagging economy often requires a sharp focus on cost optimization. Startups should conduct a thorough review of their operations to identify areas where efficiency gains can be made without compromising quality. This might involve renegotiating contracts, optimizing supply chains, or leveraging technology to automate routine tasks. A lean and efficient operation is better positioned to weather economic uncertainties.
We see so many times with the “Growth at all Costs” mindset teams that are overstaffed and bloated, leaving the company with an unsustainable burn rate. Even during strong economic times, this isn’t the best and can realistically slow down the decision making process between individual contributors and leadership.
Diversification of Revenue Streams
Overreliance on a single revenue stream can leave startups vulnerable in a lagging economy. Diversifying revenue streams provides a safety net by spreading risk. This could involve exploring new markets, offering complementary products or services, or establishing strategic partnerships. By diversifying, startups can create a more resilient business model that is less susceptible to the impact of economic fluctuations.
Curious why MicroStrategy owns nearly 190,000 Bitcoins? What’s the linkage between an AI-Powered Business Intelligence Platform and owning the world’s largest cryptocurrency? While there isn’t a direct linkage between the two, the diversification allowed MicroStrategy’s stock to soar over 350% in 2023 as the price of bitcoin rallied. Obviously there comes a lot of risk with diversification of this kind, but it’s just an example of larger companies playing the game versus a smaller-scale startup.
Long story short, you don’t need to convince your board of directors you want to add crypto to your balance sheet but you should be pursuing alternative revenue streams to balance your profit.
Strategic Alliances and Partnerships
Collaboration is a powerful tool for startups facing economic headwinds. Building strategic alliances and partnerships with other businesses, both within and outside the tech industry, can create new opportunities for growth. These collaborations can range from joint ventures and co-marketing initiatives to shared resources and expertise. By pooling resources, startups can navigate challenges more effectively.
Embrace Innovation and Emerging Trends
Lagging economies often see the emergence of new trends and opportunities. Startups that embrace innovation and stay ahead of the curve can position themselves as industry leaders. This might involve investing in emerging technologies, exploring new markets, or reimagining existing products and services. By proactively innovating, startups can disrupt traditional models and carve out a niche even in challenging economic conditions.
However this doesn’t mean stray from what’s gotten you to this point as innovation for the sake of innovation is rarely justified. You’ll want to find realistic synergies that pair with your current business model and align with your customers’ needs.
Build a Resilient Team Culture
The success of a startup is inherently tied to the resilience and commitment of its team. During tough economic times, maintaining a positive and collaborative team culture becomes even more critical. Open communication, transparency, and a shared sense of purpose can keep the team motivated and focused on overcoming challenges. A resilient team is better equipped to adapt to changing circumstances and drive the startup towards success.
Whether that’s just you and your Co-Founder, or your team of 100 it’s important to make sure everyone understands the relative financial health of the company. You don’t need to open your books to the world, but being honest and transparent goes a long way to getting support & buy-in from your employees.
To wrap everything up, in the face of a lagging tech economy, startups have the opportunity to demonstrate their resilience and creativity. By embracing adaptability, focusing on value, and cultivating strong customer relationships, startups can not only survive but also thrive in challenging economic conditions.
The ability to innovate, diversify, and build strategic alliances will be key to navigating the stormy seas of the startup landscape. Whether you’re a founder, investor, or startup employee your role is crucial in ensuring the long-term success of your company and we expect to see a stronger rebound in 2024.
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To find the right mentor to help support you in your journey visit us at Gildre.com and connect with knowledgeable executives and operators in the industry.
