The last few weeks, Silicon Valley investors have been sending out cautionary emails warning the startups they've invested in that funding will be getting tight soon.
Everyone has the same general consensus in their messages: "If you're going to raise funding, do it now, because you won't be able to later."
Not much more than 6 months ago, the same investors were telling startup founders that Zenefits' growth rate was the new gold standard, and that every company should strive to achieve the same kind of high growth as the "unicorns."
But now, even prominent tech accelerators are becoming much more conservative with their startup advice. Y-Combinator's Paul Buchheit gave the following advice in a recent interview he did with CNBC:
Less investor funding could mean the end for many unprofitable startups with high burn rates if they can't turn things around fast, but that might not be a bad thing for other players in the ecosystem either.
In that same interview, Buchheit continued to say:
"When...it's too easy for startups to get money, that can actually be a detriment to the stronger startups."
Whether investor funding disappears or not, these 3 tips can help you ensure your business survives, no matter what:
#1. Make Sure Your Business Has Sound Financials
Do your unit economics actually make sense, or are you spending a lot more money to acquire customers than the amount of money those customers actually make you?
Whether you're an early stage startup or have hundreds of employees, you need to have a solid business plan that will actually make your company money in the long-term.
Similarly, you should pay close attention to how much money is in the bank. Always know exactly how much runway you have left, and don't wait until you're close to running out of money to fix this.
You should start thinking about heavy cuts or major changes when you're only down to 6 months of cash left (or even sooner ideally). You never want to be in the precarious position where you're not sure if you can pay your employees for their last month of work like Zirtual was.
#2. Achieve Product-Market Fit
Are there actually enough people that need your product or service enough to be willing to pay money for it, or are you still relying on your mom and friends to be your biggest fans?
Talking to a few people who say your product is cool isn't enough to validate your business model. While there isn't an exact science or cut-off to determining whether or not you truly have product-market fit, the more paying customers you have, the more likely it is that you have it.
Other good indicators of product-market fit are:
- Product usage--How often are people logging in and using your product on a regular basis?
- Customer retention--Are customers sticking around, or do they leave after 1 year or even just only a few months?
- Sales activity--Are more and more leads coming into your website? Getting more organic leads is a good sign that you might have product market fit, but so are short sales cycles that have a high percentage of closed deals.
If you have product-market fit, not only will you have an easier time getting new customers, but you will also have less trouble keeping your existing customers around.
The more your product is a "painkiller" to a real problem, and not just a "vitamin," the easier this will be.
#3. Have Real and Scalable Growth Strategies Instead of Trying to "Go Viral"
It's always exciting when you see your content trending on social media or you find your company featured on a site like Product Hunt. However, these spikes in web traffic and mentions are not a replacement for solid sales and marketing strategies.
One of the biggest mistakes early stage startups can make is chasing after vanity metrics, awards, or anything else that doesn't actually drive sales or the adoption of real users.
You will never have effective sales or marketing efforts if you don't first understand your target audience and have product-market-fit, but after you do, you need to find scalable channels for acquiring customers.
Another dangerous pitfall for startups is investing time and money into sales and marketing strategies that will not be long-lasting or able to scale.
For example, if you were a business-to-business software company, it is okay if you get some of your sales leads from a discussion group about software on market-size.
Instead, invest your time in more scalable and highly effective sales and marketing efforts, such as "inside sales" (remote sales, done by phone and email), or perhaps content marketing or paid advertising. This is because these are channels that can scale to reach a much larger portion of your market once you have determined out which strategies and methods work best for you.
If you've figured out your company's sales and marketing strategy (with the right unit economics so you actually make money), you won't need to worry as much about the availability of funding.