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A guest post by Donna Griffit
While today’s global economic landscape is daunting and unclear, early-stage startups are still closing investments. With the right product, there are still funding opportunities. Many VCs raised new funds, yet the money is sitting in the bank, – and founders “just” need to prove the unique value of their offering in order to get the golden opportunity. Easier said than done, right?
For startup founders, a recession can put considerable stress on the business, and one of the main concerns is the potential for fewer funding opportunities. That’s why many startup founders need to make a mindset shift from the last few years when it felt like almost everyone was able to easily raise impressive funding rounds at even more impressive valuations.
Winds of change…
While recessions do lead to fewer venture capital funding opportunities, it doesn’t mean that all funding opportunities simply disappear. True, we are currently seeing high inflation rates and money lying idle in the bank is losing value.
But investors with funds still need to make investments, it’s just that they may now be more careful and more conservative when evaluating a business, looking for the longer plays and how they can get better terms.
There are many examples of startups that launched in a recession and went on to become global powerhouses: Slack, Square, and Airbnb were all started during the recession of the late 2000s, and Microsoft was founded in the deep recession of the mid-1970s.
One of the main reasons all these companies have grown into what they are today is because they provide unique value to their customers. While alternatives do exist, these companies bring unmatched value and solve genuine pains.
Assuming your solution is indeed disruptive, here are four tips to help you show investors what is irreplaceable about your value proposition.
#1 Turn lemons into lemonade
A recession does not hit every industry equally. Therefore, your strategy should depend on the industry you are targeting. In some industries, the value is ingrained in the consumers, making them unwilling to stop using related products even when they need to cut back on spending. Examples of these include health, beauty, and wellness.
However, for other industries, the picture is different. Recessions make people (and companies) reconsider every penny spent, strictly scrutinizing whether they are getting value for their money. People’s loyalty to a brand can quickly fade when faced with slashed budgets.
But every crisis poses an opportunity, right? If what you’re offering is unique, a much better solution than the competition (in value and/or pricing), and is in high demand, recessions are a time when many customers are looking for alternatives.
By showcasing to investors your irreplaceable value when money is tight, and making it easy to join your ecosystem, you can ride the trend and leverage the opportunity. This is one of the strongest positive signals you can send to future investors. Remember COVID-19? Just think of the huge opportunity it brought to some industries, such as health, medical devices, online services, eCommerce, and more.
#2 Can you demonstrate consistency?
Can you go beyond the gimmicky growth? Using one good revenue month to entice potential investors isn’t going to get you a term sheet. Forget what you see in the movies… an investor looking to hand over a significant amount of money is highly unlikely to be fooled by some selective financial reporting. Revenue of $1M may sound great when it is out of context. But, if it was $1M last year, with no growth, you will have a hard time spinning it as a positive.
Don’t make the common mistake of shooting for one massive month or quarter when you are hunting for investments. Instead, build and sustain a consistent level of sales and a low churn rate. A sudden surge of new customers that quickly move on shows that you might have had good marketing or sales campaign; but steady retention over time shows you have a good product and can offer people genuine value that keeps them coming back and buying your future offerings. With a product that clients don’t walk away from, you’ll definitely pique investors’ attention.
When customers love your product or service, it is absolutely critical to get them to tell other people about it. This can be done by asking for online reviews, social media engagement, warm intros, and the like. Publicly shared 3rd party feedback shows investors your company is ready to go to the next level.
#3 What are you waiting for?
When you have the data to demonstrate your unique value, please don’t keep it to yourself – this is not the time for modesty! Let everyone know about it. Use this data anywhere you possibly can:
- Company website
- Social media/LinkedIn
- Marketing collateral
It should be one of the first things people know about your business.
We all know that bad news travels fast. Well, you need to ensure that investors don’t judge your startup based on out-of-date information. When you make an achievement, put in the effort to get it out there. Venture capitalists are busy people with many demands on their time. Often, they will have an image of a startup based on the last thing they heard, watched or read. Work hard to ensure it is something great.
#4 React to the new circumstances
In difficult times, many new problems come to the forefront. However, with the right product and a savvy sales team, you can pivot and position yourself as the new solution to the current challenges across industries. As mentioned above, take the start of the pandemic, for example. Businesses were scrambling to organize remote work and maintain successful workforce collaboration. At this time, smart companies were looking for ways to market themselves as remote-work-related solution.
Also, the current story of your brand might not make as much sense during a recession. Potential investors may look at your business model and fail to see how it works, given the new reality. Don’t insist on keeping the story as is. Always be willing to pivot and find another angle, focusing on the parts that are most relevant to the current market conditions. When done successfully and communicated effectively, this isn’t a red flag for potential investors. On the contrary, it shows agility and forward thinking.
Think about it, is there a chance that you can show how the downturn plays in favor of your startup? A positive story in hard times may be what it takes to close your next funding.
Donna Griffit, Corporate Storyteller, has worked globally for over 18 years with Fortune 500 companies, Start-Ups, and investors in a wide variety of industries. She has consulted and trained clients in over 30 countries, helping them create, edit and deliver verbal and written presentations, pitches and messages. Donna has the ability to magically spin raw data into compelling stories that captivate audiences and drive to results. Through her guidance clients have raised over a billion dollars. To learn more, visit DonnaGriffit.com