How does the wind affect a great pilot? You could say—a lot. You’d be right. You could say—not much, because skill trumps the weather. You’d be right.
Recession, inflation and recovery don’t have to stall a startup
Despite all the media buzz, and even a few storied VC firms playing the sad violin, recession and recovery doesn’t mean we need different founder DNA. As a founder, you’re naturally adaptive, inspired and focused on changing the world. In this post, our team reached into our collective decades of operator knowledge to come up with grounded tactics for times like these. Valor is here to help you catch the winds of change—and soar.
There are four things to keep in mind, in startup weather with stormy or sunny skies:
1) Sales and pricing strategy. (The S of SOAR)
In times of recession, revisit your pricing game often to reward customers for stability.
To do this, get a current handle on your unit margin (or burn) right now. (More on that later). When you have a sense of it, ask yourself, do you like your monthly fee? Make sure you do. Is it the cheapest of your competitors? Just really ground yourself in where you are, because changing weather changes the competitive landscape. (Many of your competitors will fail faster!)
Once you do have your arms around the alternatives to your product and their pricing strategy, take that monthly price number (which becomes your MRR) and consider the discount you want for annual sales. So far, so good. I’m sure you already have this. What discount are you willing to offer for the regularity of a 12 month commitment?
But now the real updraft —make a “you can’t beat this” price for a 3-year contract (with no cancellation). Your sales leaders can and should make the argument that in 3 years, there is no doubt your software will be worth much more to them—but they can lock in a sweet rate right now and save big.
Dare you offer a 5 year option? That’s gutsy. Go for it.
2) Operating Costs. (The O in SOAR)
Is it boring to visit your company credit card, your invoices, and your contractors fees? Yep, and this is a discipline that separates the good from the great. So make a game of it. What would you do if you HAD to cut 10% next month? What if you asked each of your managers for the same 10% cut?
Make cost cutting a check-in point not only for you, but for your team. You can choose to execute the options or not, depending on your burn and runway. Reframe cost management like reps on your favorite exercise move. You don’t do it for novelty. You do it because it hurts so good and it makes you stronger. How can you build cost containment and cost cutting reviews in, now, and cycle it forward?
A special note on cost containment around debt–
Whatever debt you have, it’s likely getting more expensive. Double click on debt management in these times and know your cost of credit in dollars per month every month. If your team has credit cards…yeah, check it quick with a proper policy. Update that policy if it needs updating (there is only one answer), and add it to your cost containment cycle.
3) Access to capital. (The A in SOAR)
VCs want you, but they want you for a lower valuation. How do you counter that in a time when money is expensive, loans are pricey, and your founder liquidity is low?
It is a really tough question and it has got some bite, because just last year, founders could tap a very liquid home second mortgage, not to mention equity secondaries with great ease. It’s going to get a lot harder this year and potentially for the next few. The soaring move here is not to set your altitude on a valuation and refuse to move. Prevailing winds are better met with a long term, sustainable strategy and and eye on how you get to EBITDA positive with capital.
My advise is to reach out to the Tier 1, A+ investors you most want now, and then woo them with insanely strong, sales-forward monthly updates. At the end of these updates, don’t ask for capital. Ask for a referral to talent, or to a big customer you want—anything but money. Send this “special newsletter” only to existing investors and your most-desired NEXT investors. You’ll be pleased at the optionality this rhythm can give you.
Note: Don’t do it until you have the pricing game and cost containment game on stun, or you risk scaring them off with a couple less than stellar updates. You probably know by now that VCs are easily scared off—they spook worse than horses.
4) Recruiting (the R in SOAR)
This is where your situation can really catch some air in recession. As a visionary, working with you in your hybrid-friendly environment to build a transformational business in which one gets equity looks like a dream compared to 80% of the corporate tedium terrific leaders are about to put up with. So in this tight job market, polish your wish list for talent to high shine, and ask yourself, what if you raised your bar 10%?
It’s time to consider a recruiter in your close network—and hopefully your VC can recommend a few great ones who will make the time to work with you. When money is tight, share prices go on sale—and so does talent. The best talent will always command top dollar, but the top of that dollar just took a haircut. You should even ask yourself, if you had the co-founders of your dreams, who would they be? They might exist—and be available.
Startups can SOAR through times of inflation
I hope this post encourages you with practical, tactical approaches to what many fear-mongers are coloring in as a “terrible time for startups.” It’s not terrible. The tourists just packed up. Now you have the whole resort to yourself, and sure, some of the features are closed for the cash conscious, but it’s a heck of view. Some of the companies started during recession and/or high inflation? Apple, Mailchimp, Slack, WhatsApp, Microsoft, Pinterest, General Motors, CNN, IBM, Uber, Groupon, Instagram… and you? For you, a founder building the future, the future is absolutely yours for the taking. Don’t pause, don’t overthink–we hope you can use these 4 tactics to lift yourself above the straggling competition and never look back.
-Lisa Calhoun
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Does this resonate with you, and your software company hasn’t raised a seed round yet? We might be the right lead investor.
Give us a shot.
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