Steve Streit: 5 Startup Strategies to Navigate Uncertain Times

Every startup needs a plan to navigate uncertain times. Those that plan for good times and bad — and the in between, of course — tend to survive and prosper for longer.

Unfortunately, many startups never take this step until bad times hit and they find themselves scrambling. That’s why experts advise founders to develop contingency plans from the very beginning.

“Effective contingency planning strengthens your enterprise, helping it navigate economic downturns, shifts within your industry, and general ‘macro’ uncertainty,” says startup investor Steve Streit, whose venture capital firm backs a range of visionary startups across fintech, healthtech, retail and other sectors.

Streit recommends implementing these five strategies to prepare your business (and your team) for uncertain times.

Proactively Reduce Your Cash Burn

It should come as no surprise that one of the leading causes of startup failure is running out of money. Nearly 30% of startups fail this way, according to Silicon Valley Bank.

Startups are more likely to run out of money when the proverbial tide goes out, as happened when interest rates spiked in 2022 and onwards. Prepare now by reducing your company’s “cash burn” rate, or the pace at which its spending exceeds its revenues. Put everything on the table, with mission-critical functions taking top resource priority.

Double Down on Early-to-Market Investments

After slowing your burn rate, reallocate resources toward investments likely to pay off sooner. That is, products or offerings you can take to market in six months, rather than one year or two. The sooner you realize that revenue, the more breathing room you’ll have to weather difficult times.

Limit “Down Round” Exposure

Closing the next fundraising round at a lower valuation than the previous one is often seen s a red flag that the business is headed in the wrong direction. For this reason, it’s best to avoid “down rounds” if possible.

On the other hand, during prolonged periods of economic uncertainty or low valuations in a particular industry, even strong companies may need to raise in a down round. There may be good reasons to do so, in fact.

“Taking a down round, while carefully managing the impact on existing shareholders, can help keep revenue and equity value growth at a rate that matches, or even exceeds, current levels,” says Brian Dudley, growth equity partner at Adams Street.

In other words, listen to your fundraising advisors — and get a second opinion if you’re not sure.

Look to Low-Interest Debt and Other Non-Dilutive Financing Options

Keep in mind that the current interest rate set by the U.S. Federal Reserve, currently between 4.25% and 4.5%, is an absolute floor, not a realistic benchmark for your startup’s borrowing costs. Depending on how risky lenders think it is, your startup may have to borrow funds at double or even triple that rate.

With that in mind, look for fundraising options that don’t involve high-interest debt, such as government-backed loans, grants, or even startup prizes.

Pivot to “In-Cycle” Offerings

When times change, nimble companies change with them. For example, you might have launched your fintech startup as a bespoke business credit offering, but now that times are more challenging for the average consumer, you’ve decided to pivot to “buy now, pay later.” Good move! 

However, your pivot still needs to be grounded in reality. It’s important to avoid “lazy pivots” with no clear reasoning behind them, says startup expert Ben Yoskovitz.

“Lazy pivots rarely work because they’re not based on anything material. There’s no indication your customers care,” Yoskovitz says.

Final Thoughts

Steve Streit’s recommendations are not exactly bulletproof armor against uncertainty, downturns and all the rest. Nothing is. However, these recommendations, and the practice of business contingency planning in general, can give your startup an advantage when times get tough.

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Source: https://www.epiclaunch.com/steve-streit-startup-strategies/