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Written by Mark Schrader
Despite glimmers of hope, the market turnaround has yet to materialize, leaving startup founders in a difficult position when deciding how to optimize their resources.
The majority of founders I spoke to are in survival mode, focused on cutting costs to extend their runway. While this is certainly the default option, it does have drawbacks, and I don’t see many founders pushing to consider viable alternatives.
survival mode
In times of uncertainty, it’s a natural reaction to want to proceed conservatively. Cutting spending and even cutting headcount to add 6, 12, or 18 months of runway may seem like a way to achieve that objective.
The problem is that when you start trying to time the market, it turns out that what you’re actually doing is a form of gambling. Perhaps, even if you wait for things to settle down, there may still be enough money in the bank to reignite when the market improves, making new financing more realistic. .
But maybe you’ll end up feeling exhausted.
The key here is that not only do your bets on the timing of the market rebound need to work out, but you also need to have enough resources in place to get back into growth mode, build some traction, and hopefully make a good impression. That means you need to leave it behind. You have enough VC to raise in the next round. As long as you’re taking risks like this, you should also consider a bolder strategy: growth.
growth mode
Sometimes it’s beneficial to be contrarian. While 9 out of 10 of his startups go dormant, there could be a huge opportunity to conquer a vertical market. Look at your competitors. Are they actively marketing? Are they attracting new customers? If not, this might be your chance.
Power your sales and marketing engine, ship new products, acquire new customers, and increase your ARR. Yes, it’s costly, but doing this will make your company much more attractive to VCs.
At the moment, there are too few startups that are still growing. If there’s something that VCs love about the growth, and it’s 2x to 3x ARR growth, and they’re making strides to corner the market they’re in, even better.
bootstrap mode
The last option for some startups is to reduce the costs associated with rapid growth and focus on developing an efficient and profitable business.
I’m always looking for startups with business models that actually work. In the early stages, too many companies experiment with ideas that may never find their way to profitability.
Admittedly, if your company is still small and profitability doesn’t mean spectacular growth, you should temper your expectations for a new funding round.
On the other hand, if you’re trying to do things conservatively, bootstrapping can be an even less risky option than going into survival mode. You don’t need to make a living from runways if you can make a profit.
The real question is whether they can stay competitive when rebounding, raising new capital and fast-growing competitors spin out.
Each of these paths has its own risks and benefits. Which one is right for your startup depends on many factors. That means how much cash do you have in reserve, what your competitors are doing, and what your path to profitability looks like.
The bottom line is that founders have options beyond cutting costs and extending runway, and would be wise to consider them.
Marc Schröder is MGV’s Managing Partner and Co-Founder, and is focused on building MGV’s legacy by collaborating with world-class technology entrepreneurs. Prior to co-founding MGV, Mr. Schroeder served as Head of Global Sales at Maschmeyer Group and was also an investor at Seed+Speed Ventures. Originally from the Netherlands, he grew up in South Africa, where Bertolt graduated with a law degree from Brecht University.
Illustration: Dom Guzman
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