In my last post on the topic, I covered the potential factors affecting startups in 2024. In this post you will learn how to manage startups in difficult times. These are the things your company can do to adapt, and to mitigate issues that can arise.
Structure Your Company in the Most Cost-Effective Manner
If your existing plan calls for building the company “top down”, consider building it “bottom up” instead. What does this mean? “Top down” means you hire C-level executives (“Chief” Officers) first and then they hire their employees. This can be an expensive way to create a company. This can become a bigger issue when trying to manage startups in difficult times.
Instead, consider the bottom up approach.
Some of the best startups are built bottom up. In this scenario the founders and first hires are engineers or coders, or bio-researchers. This means they create the initial product. Then as more senior people are needed, they are brought in as managers.
One huge advantage of this approach is that the founding team can often be compensated with stock instead of cash, at least for a limited period of time. Their salaries are also less than C-level executives. In other words, the top down approach may be much more difficult to do, if not impossible. Because executives will expect to be paid in excess of $100,000 per year.
Managing Startups in Difficult Times Requires a Smart Approach
One company I worked with, LiveSafe, Inc., used founders’ stock to hire a small implementation team to build a first version of their product. This was an app that would allow users to send text, photos, or videos to 911 in case of an emergency. The initial product received enough acclaim that the company got national TV coverage, which helped lead them to a more experienced management team and both angel and venture capital investors (Fred Smith and Barry Diller).
Fine-Tune Your Pitch
If, after analysis, you still think you need capital, and you don’t see where to get it immediately, use the time to refine your strategy and pitch deck. This requires taking a critical look at your strategy and making sure it makes sense to investors. Test all your assumptions. Fine-tune your forecast. Also make sure that you can defend your revenue and profit projections. This is good advice in any climate, but more necessary for startups in difficult times.
Use this time to tighten up your pitch deck. Make sure it addresses all the questions investors want answered. Ensure that it sends clear and compelling messages. Also be sure you have a pitch deck that is effective for your first contact with potential investors—for requesting a meeting for example. I receive a lot of pitch decks that have exotic diagrams, photographs, charts, and graphics. But, too often, these decks are incomprehensible because there’s no one available to explain all of the images.
Show Investors What They Want to See
When making initial contact with investors or potential partners, your deck must be self-explanatory. The reader must be able to get answers to all of the important questions that investors need answered. This is always the case, whether managing startups in difficult times or not.
At the same time, make sure your pitch deck is effective for use in a standup presentation. This means that the deck cannot have a lot of text that requires the audience to read while you are talking. This makes it almost impossible for the audience to really get your message.
You can read more about what investors want to see in a pitch deck here.
If you think it’s necessary, you can create two separate pitch decks—one for the initial contact and one for stand-up presentations. This might be optimal. But a reasonable compromise that has worked for me for years is following the “How to Answer Investor Questions” pitch deck template, which you can find at the bottom of my Home page on my website. This template is effective because it uses a few short bullets on each slide to answer the important questions. The bullet points contain enough substance but they are not a distraction during a standup presentation.
“When You Come to a Fork in the Road, Take It”: A Boon for Startups in Difficult Times
The above quote is attributed to Yogi Berra, and a favorite of mine. In the case of managing startups in difficult times it means exploring all alternatives. This exploration might include considering:
- Angel funding
- Venture capital funding
- Venture debt
- Strategic partnering
- Making deals with customers
- Government grants
One of the companies I helped found, NovaDigm Therapeutics, raised about $20 Million in government grants before it obtained equity capital. Government grants can be one of the best ways to finance the proof of concept phase for a startup company.
Here’s an important point that a lot of startups Ignore: Each of these funding sources may require a different strategic plan and a different pitch deck, especially when managing startups in difficult times. If you want to maximize your chances of getting funded, document the optimal strategy for each target investor and create a pitch deck aimed specifically at that target. Out of laziness, most startups try to get by with just a single pitch deck. This is understandable, but it means that the startup is sending a less-than-optimal message to each audience. My advice is to customize your pitch for each different audience—including even different venture capital funds based on their stated interests.
Traction “Vets” Management and Reduces Risk
Last but not least, use this time as an opportunity to demonstrate your management skills. Devise creative ways to guide your startups in difficult times and demonstrate to investors that your startup has a fundable management team. Investors will be less concerned about vetting your management background if they can observe positive results.
In conclusion, managing startups in difficult times may mean it will be more of a challenge to obtain adequate funding. But there are many steps you can take to keep making progress.
- Refine your strategy
- Refine your structure
- Tune up your pitch deck
- Pursue all of your strategic and fundraising options, each in the optimal manner
- Explore every way of getting some market traction
Hopefully 2024 will be a great year for you and your startup.
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