You've seen the choppy markets--they're telling you that 2016 is already different than 2015. You know the days of high valuations and repeat financings are over. You're preparing yourself for a year of tightened belts, heightened scrutiny and frigid valuations. 

As an investor, I see this as both something to fear - how many of my companies will go out with the tide - and opportunity - because it should reset what was becoming an overvalued, bubbly market. Knowing that, there are key things you can do to position your company to not only survive, but come out of 2016 as a stronger business:

1. Focus on Core Underlying Value

The first businesses to go when any bubble bursts are the ones that are "add-on companies." They usually build sexy software that looks great in power point and gets customers signed on when there is money to burn, but get slashed when the red ink hits the budget.

You need to take a hard look at your business and consider: of all the products we are building, what solves a really core issue for my users? Figure out how you can reorient your focus to zero in on that core product and make it even better, rendering you indispensable to your clients even when they have to slash outlays.

2. Build a Sustainable Revenue Base and Key, Loyal Clients

One thing I've noticed: in bubbles, the term "user growth" gets dramatically, pun intended, overused. The focus becomes: how can you grow, even if that growth is inefficient and expensive, with limited or no immediate payback?

The businesses that weather 2016 best will be those that turn this approach on its head: they will take a hard look at their users, or clients, and say: which segments are paying? What are they paying for, why is it valuable, and how can I make that aspect more valuable? In keeping with that, how can I increase their switching costs and make them pay more?

Ultimately, those businesses that can point to reliable, hefty clients or clear-cut, loyal paying user segments will still get funded and, in fact, because venture capital firms raised so many new funds in 2013-2015, may actually receive more capital as "safer" businesses than they would have in a boom cycle.

3. Be Open Minded to Strategic Exits

In go-go years, everyone thinks they are building a billion dollar business. In corrective years, not only does the chaff go out with the tide, but many legitimately excellent businesses should take the opportunity for a cold, hard analysis of the benefits of a strategic M&A.

Many large corporates that were turned off by the massive valuations in 2015 will be on the prowl in 2016 for earlier-stage companies that have core-need products and loyal customer bases - with a particular emphasis on the former - that they can rapidly acquire and add to their own base of offerings. Savvy founders able and willing to recognize a good - if not superlative - payday will take advantage of that golden parachute.

Published on: Feb 24, 2016