Startups today face a challenging venture capital investment environment, with many VC investors reluctant to part with their funds. Amid a banking crisis that hit close to home for VC investors and startups alike, competition for access to the same heavily guarded funds has become increasingly fierce. To achieve success under these challenging circumstances, startups should instill five traits to make the transition from merely good to truly great.
Throughout 2022 and now into 2023, VC firms have become more selective about the startups they invest in. Many investors, particularly those in private equity, have globally reserved an estimated $1.3 trillion in dry powder, with VC dry powder estimated at about $580 billion. Instead of taking their chances with unproven startups, VC firms more frequently invest in mature startups with well-established business models and readiness for public markets rather than unproven companies. Oftentimes, these firms will use stored funding to invest in startups already within their portfolio to ensure a healthy return on investment.
What can startups do when VC funding dries up?
Rather than focusing on impressing VC firms that are already spooked following the collapse of Silicon Valley Bank, in which many firms and startups had deposited money, startup leadership should focus on developing the traits that make startups stand out to both potential investors and, possibly most importantly, potential customers. Finding alternative funding methods outside of VC funding is also vital for continued growth, but these traits give your startup the fundamentals it takes to be truly great.
At the St. Louis INNO Startups to Watch event, a panel discussion between honorees Sarah Bernard, cofounder and chief operations officer of Inclusively, and Mary Fernandes, cofounder and president of Solis Agrosciences, focused on how emerging startups could find growth opportunities even during unsettled economic times. They credited the following traits for their success and encouraged other startups to take note. In order to get a jump on the competition, startups should:
1. Fill a gap.
Ideally, this process would begin during the planning stages of your startup. Within your chosen industry, there is a palpable lack waiting for an innovative mind to fill it. Somewhere, there is a process, product or service that could be slotted in to ensure a more seamless experience. Finding that critical gap and developing a way to fill it creates a customer base seemingly out of thin air. Creating meaningful change for these consumers can help create more demand for your business’s services or products.
2. Create a narrative.
Storytelling is an important part of the human experience. People respond to stories, they relate to them, and stories connect different groups and cultures together. By building a narrative for your company, you invite customers and investors to see themselves as part of the story. It adds more purpose to their actions and interactions with your startup and more incentive to get involved in the first place.
3. Commit to ridiculously good customer service.
In the absence of investor funding, establishing and maintaining excellent customer relations should be a top priority for startups. Offering customers the lowest available price likely isn’t an option, which is why it’s vital to figure out other methods that provide added value for them. Speak with clients to learn their needs and come up with unique solutions.
Creating satisfying customer experiences can also lead to more advertisement via word of mouth in addition to ensuring brand loyalty. To create opportunities for long-term success and ensure longevity, develop and deepen customer relationships. In some ways, these relationships can be more impactful than investor-startup relationships.
4. Make decisions quickly and with flexibility.
Startups are much more susceptible to fluctuations in the market than their established counterparts, leaving them more vulnerable than most to sudden economic changes. Not all events can be predicted, but spending too much time on your back foot as a startup can leave you off-balanced and poorly prepared to handle the crisis at hand in an urgent yet measured manner.
Developing action plans ahead of time can help speed up the decision-making process, but not every crisis can be anticipated or planned for. Flexibility and the willingness to quickly commit to difficult decisions is key to the ability to quickly respond to emergencies, giving your company a leg up over the competition.
5. Invest in talent.
The quality of your staff is another way to set your startup apart from its competitors. This may be a sore subject for companies still trying to fill open positions, but making the right choices during the hiring process can turn a startup that’s just OK into the type of startup that can change the world. Startups typically have smaller numbers of employees who often need to cover many roles. A salesperson at an early-stage startup may also serve as a marketer and public relations officer in addition to their main role. This is an opportunity for staff members new to the industry or workforce to gain experience in multiple areas of the business, but the right applicant can make the difference.
Someone who is both flexible enough to take on multiple roles and dedicated enough to ensure they’re all performed above and beyond what you’ve asked for is a rare find, but it’s worth it to invest the time in finding them. While startup leadership can enforce and exhibit the traits listed above, many times it’s up to day-to-day employees to truly make them part of the company’s culture.
Developing these traits isn’t a guarantee of success, but many of the most successful startups have embodied these principles. When your runway keeps getting shorter and there’s little additional funding to be had, it may be time to turn your attention inward to identify opportunities for growth your business can achieve internally. Turning that focus inward can potentially also help attract investors down the line when economic prospects aren’t quite so dicey.
Need guidance on next steps with your startup? Anders CPAs + Advisors works with startups and entrepreneurs on their financial needs so they can focus on what they do best. Contact an Anders advisor to discuss your goals and how we can help you achieve them.
Every day at Anders, we serve as a catalyst for those striving to achieve their highest potential and carry this mentality on to our clients and community. Through a collaborative approach and a combination of tax, audit and advisory services, we help our clients achieve their goals.
Max Goewert, CPA, works with individuals and businesses on tax and financial planning opportunities. Goewert endeavors to help clients, particularly startup companies, minimize their tax and compliance burdens in order to achieve growth and meet their business goals.
