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The message was written on the tombstone: “RIP Good Times”.
Dirok Kraisataporn | Getty Images
During the Great Recession, I started my first company. AppDynamics had 10 employees of his and was having trouble implementing a product with his second customer, Netflix. Famous RIP memo October 2008. Many early stage companies around us went out of business when they ran out of funding. We’ve seen runways shrink to just a few months. I was building in mourning.
Fast forward to 2022 and here we are again — serious warning from investors. Call it the “startup recession” or the VC cash shortage, but inflation is rising and markets are falling. But this doesn’t mean the end of the next generation of entrepreneurs. A recession puts founders in fight-or-flight mode. Survivors can become even stronger.
AppDynamics succeeded and Acquired for $3.7 billionThis was not the only experience I had with building in a recession. In July 2020, as the pandemic terrorized both institutional and individual investors, I launched cybersecurity company Traceable.
The pessimistic headlines exaggerate market shifts, but history proves success is possible. With that in mind, here are his four tips for startup survival.
Related: Lessons for Young Startup Leaders: How to Survive a Recession
1. Be ruthless about what your customers want (and give them)
Over the past decade, easy funding has allowed startups to scale without generating any revenue. Promising technologies are often not products that people can actually pay for. When funds dry up, that luxury goes away.
And that’s good. Now you’re forced to focus relentlessly on what actually makes money and gets customers. It fades.
At AppDynamics, we started by focusing on very specific target customers who desperately needed our services. We looked at companies like Netflix where application speed is directly related to revenue. Next, he streamlined the feature set to focus on one problem: enabling engineers to troubleshoot the root cause of slow software.
This goes hand in hand with our enthusiastic attention to customer support. For two months, nearly every day, driving from our offices in San Francisco to his Netflix headquarters in Los Gatos, he spent 90 minutes observing our product in the environment and making sure it delivered value. . This focus allowed us to do things that were difficult at the time. It was to extend the runway.
2. There is still money on the table. pick it up.
Frothy fundraising has disappeared, but if you need money, it’s still there, especially for early-stage companies.Series A valuations may have peaked in 2021, but are still holding up historically highInvestors have a huge amount of dry powder sitting on the sidelines waiting to be invested.
Securing your investment starts with demonstrating the metrics that matter. A growing customer base, strong retention and low burn rates open the door to funding opportunities. Likewise, being too obsessed with stock prices and valuation multiples today doesn’t help. Rating goes up and down. The key is raising the capital you need to build your business. Startups that are able to stay in the game can regain their valuation in subsequent rounds.
There is also a silver lining here. It takes more time to secure the funding, so there is more time for due diligence. Startups can look for value-added VCs who not only make easy money, but also offer mentorship and industry expertise.
Be strategic rather than ruthless when it comes to how you spend that money. Look at overhead costs and negotiate with vendors who have incentives to lower costs while everyone is cutting back on spending. We try to reduce our reliance on expensive contractors and agencies and bring our expertise in-house. And turn your attention to your most important resource in a recession: your team.
RELATED: 5 Tips for Running a Successful Business During a Recession
3. Don’t Pause Key Talent
Many startups freeze hiring or resort to massive layoffs during recessions. But there is a fundamental paradox here. You can’t grow without people.
At the same time, a recession provides a significant hiring advantage as competitors become timid or declining. Before Lehman Brothers went bankrupt in September 2008, AppDynamics was fighting for every role. But then we chose talent. just now, hard-to-find developers suddenly available. It also makes it easier to attract talent from established companies that are short on stock options and his RSUs.
Due to limited resources, we prioritize people who join the company and bring change quickly. With a small team, I initially took on the HR and accounting functions myself. Instead, we’re putting all our resources into engineering, sales, and customer support. This is the critical flywheel you need to generate and grow your revenue.
4. Use adversity and transparency to rally your team
Now is not the time for secrets and clichés. Teams can also watch the news to find out what is happening in the market. Tell us about your company’s position.
We were very clear about the metrics we needed to advance to our next round of funding with AppDynamics. It took 20-25 new customers to secure a Series B. This was no fictitious goal. The deadline was fast approaching.
Frequent communication is also important. He’s a week too long to wait for an update when the runway is months instead of years. AppDynamics daily all-hands sync covered customer touchpoints, technical issues, and product challenges. And the whole team was united, motivated, and dedicated to leading our customers, and we made it to $11 million. Series B.
Ultimately, the recession doesn’t make everything harder. Some things get easier. In fact, some of the world’s biggest brands are proving that a recession rewards innovation. Microsoft, WhatsApp, Venmo, Instagram, and Uber had their ups and downs during the recession.
RELATED: How to Succeed as a Startup in the Slow Economy
Ultimately, market downturns remove distractions and magnify problems that demand immediate solutions. Smart companies can and do adapt. We focus relentlessly on product and market fit to find funding, attract key talent, and build a battle-resistant culture. This will be a challenge, but for the persevering founder, history is on your side.
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