Startups can ride out the bumpy market by going back to basics

For the first time in over a year, global venture funding slowed between quarters at the start of 2022. While the change may set off alarm bells for founders, it’s actually a recalibration following months of unusually huge rounds and valuations. This is a return to a more stable, risk-aware VC space.

In this calm, founders have a moment to pause, regroup and maximise resources.

Founders need to go back to basics and ensure that their company fundamentals are right and that they can keep growing from those fundamentals. It’s not necessarily about the amount of capital you have, but being efficient — that’s something I’ve learnt being a founder and investor through the dotcom bubble, the housing crash, the financial crisis and the pandemic.

Here are three ways you can concretely do that — and keep steady on the road ahead.

Focus on product-led growth — and get your investors to help you

Investors will tell you that you need a year’s runway available and that you shouldn’t be overspending during this period. They may recommend that you freeze your team headcount, stay close to your customers and explore more elastic pricing and products. However, these actions need to be based on data. If your growth metrics are in single digits, the underlying issue may be the stickiness of your product, not the size of your team.

Hypergrowth needs to come from your product core and be mostly organic. Of course, you can use marketing to accelerate your exposure to new customers, but if your budgets are tight, your priority has to be building a product that people genuinely love.

Investors should support you in understanding your user feedback, listening carefully, iterating your product and launching a better version — that’s at the heart of being product-led.

Get your data in order

Every business generates data in one way or another. What makes your business’s data stand out is how you instrument, visualise and interpret it. By optimising these areas, you can identify growth opportunities no matter how severe the situation is.

In the early months of the pandemic, travel and leisure startups had to deal with lockdowns that severely curtailed their operations. Data was key here. One company I work with lost considerable revenue — but they conducted a data deep dive which helped them shift their focus to the bottom line and keep growing healthily.

“You should be collecting data that lets you see trends coming before customers act on them”

The deep data analysis helped the company understand which group of customers were most affected by the pandemic. For example, the rental and housing situation in California was very different to the one in Florida. Identifying the most important cities (in terms of customers and regulations) was crucial to prioritise efforts and inventory investments.

At the same time, travel to cities practically disappeared, but trips in nature boomed. Data reflected that people felt safer being outdoors in nature rather than in concentrated cities. With this explosion of alternative travel, the startups listened closely to customer feedback and took care to cater to their new preferences.

Keep up conversations with your customers

Being product-led for both B2B and B2C companies means ensuring that your product always reflects customers’ real-time needs. You have to discard preconceived notions of what you once wanted your product to be. You should be collecting data that lets you see trends coming before customers act on them.

For instance, rising inflation has unquestionably impacted how your customers view the inherent value of your product. You should be sending out surveys, launching in-app touchpoints and meeting with people (virtually or otherwise). Ask your users how things are going, if they envision spending less in the coming months, if they’re having trouble paying for your product and if flexibility would help. If the answer is a resounding “yes”, consider incentives like buy now, pay later to allow people to consume more easily. This method of payment boomed in ecommerce last year, especially among younger users who preferred bitesize repayments over a one-off purchase.

You could also consider offering perks and discounts to accommodate customers’ financial situations, but be careful that doing so still enables people to test the product, not receive it entirely for free. If people are new to your product and can’t afford to buy it after the trial, they won’t, and that will destroy part of the value you’re trying to deliver.

The VC recalibration isn’t, and won’t be, the first of its kind. Being a great entrepreneur requires being efficient by design — which means seizing moments of calm to recenter the user at the core of your business. The startups that double down on value, data and community at these points will generate the most value, for the most time.

Laura González-Estéfani is founder and CEO of TheVentureCity.