How Early Stage Companies Should Be Focused During a Recession/Economic Pullback
By Andy Miller, Managing Partner at True North Advisory
At True North, a majority of our clients are entrepreneurs and founders who are all asking the same question to us, “How do we navigate this economic downturn?” While each client has its own unique issues as it relates to this subject, there are common themes that are pertinent to all of our clients and prospects.
Perhaps because the Partners at True North have been involved in running companies and boards for 30+ years each, we have seen these economic downturns before, and have learned the hard lessons of how to best navigate through them. For early stage companies, a recession/economic downturn can dramatically change current and future plans and growth projections. However while there is always uncertainty when a downturn occurs, there are vital steps that can be taken to protect their business, clients and employees.
We have found that when early stage companies are reassessing their strategies, research has shown the they turn their attention to two key focus areas:
- Focus on controlling growth spend
- Prioritizing Risk
The areas that we assist our clients with are a menu of the below key attributes:
-Control your cash- This is a critical element in a time when customer growth may be slowing, and at the same time fundraising is becoming more difficult. Controlling costs and extending your runway by closely reviewing the client’s return on investment, focus on creating free cash flow and understanding your ability to properly forecast the funnel. One of the biggest challenges we see is that the sale cycles are extended, sometimes by 2X such that improper forecasting can greatly affect the ability to weather a downturn and put a company in position of additional fundraising with lower valuations, more difficult terms and longer cycles.
-Focus on the Long (and fruitful) Tail- The long tail, which entered the startup lexicon by a book of the same name, focuses on targeting a lot of small customers vs a few big ones. In challenging economic times, sales cycles for large ticket solutions ( especially from early stage companies) are not only harder to position vs the larger strategic companies but take an X factor longer to close. At True North we advise our customers to be laser focused on the smaller customers that have specific pain points, allocated budgets, defined decision makers and clear timeframes to allow for both momentum and cash flow, which over time will ultimately lead to larger opportunities.
-Rally the troops but ground them in reality- A number of True North’s clients are first time CEO’s and/or have younger teams both in engineering/product and GTM. While in growth mode times it is great to rally and motivate the troops with the promise of solving technical challenges and exciting discovery, leaders must be able to balance long term vision with the understanding of economic realities facing their business in a downturn. Bold visions and goals are only unlocked when they are built on top of solid fundamentals.
-Create intimacy with your client- Many of our clients utilize a channel model, which is excellent for cost effective distribution. However, in more challenging economic times the sole reliance on a channel model does not allow for the required focus on a higher and more timely close rate. In the spirit of both customer momentum and cash flow needs, we recommend a high touch intimacy with the decision maker in conjunction with the partner. This high touch model allows both for a better understanding of what is truly happening within the account, but allows you to differentiate yourself with ‘vendor and CXO visibility’, which will improve your forecast probability and success.
The above are just an example of several themes of conversations we help our clients with. It is a balancing act. Early stage companies need to be proactive in taking steps to protect their business from the effects of downturn risks. It is multifaceted, as the client needs to be concerned about the well being of employees, the need to manage and control growth and the responding demands for investor expectations.
The True North focus of ‘controlling what you can control’ rings true. While it can be daunting in challenging times, those who heed the advice of what has worked in the past for successful companies and implemented with rigor will allow not only to weather the storm, but when the economic tide turns will be better suited than their competitors for future growth.
We look forward to helping our clients and prospects with our real life backgrounds as CXO’s in both the challenging and growth focused times.
