12 Action Steps Startups Must Take to Survive and Thrive

Phil Nadel, Co-Founder and Managing Director, Forefront Venture Partners

As a startup founder, you are no stranger to the challenging fundraising climate in which we currently find ourselves. Reduced valuations, smaller funding rounds, less capital available, and a greater focus on profitability are all symptoms of the current environment. These market conditions, combined with recessionary economic conditions, have forced many companies to focus on their cash burn and runway — and this is a good thing. Market environments featuring high valuations grab all the headlines, but they are not sustainable in the long run, especially when they are not correlated with public market valuations and multiples. The pendulum has swung and it’s refreshing to see that a company’s ability to be capital efficient is now a more sought-after and rewarded characteristic than the grow-atall costs mentality that has been so prevalent in recent years. The market has also caused a much-needed reassessment of startup valuations. 

The balance of 2023, and perhaps beyond, will likely remain challenging from a funding and macroeconomic perspective. The market will continue to be cautious, and capital will be deployed at a slower pace. Many VCs will prioritize reinvesting in their already existing portfolio companies over making new investments. This will add downward pressure on valuations but will ultimately result in return to a healthier environment where great companies get funded and mediocre companies do not. 

Great companies frequently emerge and grow during challenging economic periods. Square, Uber, and Airbnb were founded in 2008 and 2009, during the Great Recession. Apple, Microsoft, and Oracle were founded in the wake of the mid-1970s recession. So, what should startup founders do now to emerge even stronger from the current economic and fundraising challenges and set their companies up for success? To paraphrase Ben Alldis, one of my favorite Peloton instructors, use this as an opportunity to build a stronger, better, fitter, and healthier version of your company. Embrace resilience and scrappiness. 

Here are 12 action steps that startup founders should take to help their companies survive and thrive during this challenging period: 

1. Focus on minimizing cash burn in order to extend runway. If you run out of cash, nothing else matters.

2. You will likely need to reduce your staff since this is usually a company’s largest expense category. Aim to build a team of all-stars and not settle for employees who are less than stellar. With many layoffs occurring at tech companies, you may even look to replace certain sub-par members of your team with all-stars who have been laid off by competitors. It is important to focus on employee morale as layoffs will cause feelings of anxiety and fear among the remaining staff. Communicate with your team. Keep them informed about the state of the business and any changes that may be coming. This will help build trust and keep everyone on the same page.

3. Make sure you understand your key performance indicators, especially customer acquisition cost (CAC), lifetime value, and CAC payback period. Once you’re sure these are dialed in, focus on reducing all inefficient customer acquisition channels. You may need to rethink your go-tomarket strategy. The way you market and sell your product or service may need to change. CAC payback should be your north star. Every company will define an efficient CAC payback differently. We like to see it less than six months and, ideally, on first purchase. If yours is greater than 12 months, your opportunities to grow may be hamstrung by your cash balance.

" The greatest danger in times of turbulence is not the turbulence — it is to act with yesterday’s logic. "

4. Maximize expansion opportunities with current customers. This can be the least expensive way to increase revenue. Although you’re limited to your current customer universe, maximize these opportunities first as they are less expensive than new customer acquisition.

5. Reach out to your customers to get their candid feedback about your product and suggestions for improving it. Listen to what they say and focus on common themes you hear. Incorporate this feedback into your product. First goal: make your product a must-have for current and potential customers, something they simply can’t live without. This will not only improve customer satisfaction but also help attract new customers. Second goal: improve customer retention. When customers know that you value their feedback, and may incorporate some of it into your product, your logo retention will likely increase.

6. Reassess your cash flow projections to ensure that they are realistic in today’s environment. Clean up your sales pipeline, getting rid of dead leads. Make sure your sales team is focused on the leads with the highest likelihood of closing.

7. Keep your investors updated and ask for their assistance. Many founders have a tendency to only share good news with their investors. Fight this urge. Your investors will be much more understanding than you anticipate and are eager to help you.

8. Take a close look at your vendor relationships and identify opportunities to renegotiate payment terms. Your vendors all understand the challenges of today’s market (after all, they are going through it too!) and want to keep you as a customer. Ask them for better payment terms. Doing so could provide you with additional runway.

9. As the saying goes, “buy when there is blood in the streets.” An economic downturn with a tight fundraising climate is an ideal time to acquire a company on attractive terms. Look at competitors and other companies that are complementary to yours. If you can acquire them for little or no cash, you may not only be able to enhance your revenue and product mix, but also add valuable team members with relevant industry experience and contacts.

10. Explore alternative funding sources. As traditional funding sources dry up, it’s important to explore alternative funding sources. This might include crowd funding, grants, and revenue-based financing. Fortunately, more of these sources exist today than ever before.

11. Leverage technology. Technology can be a powerful tool during an economic downturn. Look for ways to automate processes, reduce costs, and increase efficiency. This can help you weather the storm and position your business for growth when the market improves.

12. Stay positive. Remember that tough times don’t last, but tough people do. Stay focused on your goals, stay nimble, and stay optimistic. With hard work and determination, you can survive and thrive during even the most difficult times. 

Use this moment as an opportunity to build, a stronger, leaner, and resilient company. Following these action steps can help you protect your startup and ensure its long-term success.  

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