Here are 4 tips for scaling your startup during an economic downturn

Opinions expressed by entrepreneur The shareholders themselves.

The message was written on a tombstone: “RIP Good Times.”



Delok Klistaporn | Getty Images

I launched my first company during The Great Recession. AppDynamics had ten employees and there was a problem implementing the product with Our second client, when? Release her now The famous RIP note In October 2008. Many early-stage companies vanished around us while funding vanished. I watched the runway dwindle for only a few months. I was building in mourning.

Fast forward to 2022, and here we are again – with Serious Warnings from investors. Call it a “startup stagnation” or venture capital funding drying up, but The market is up and the market is down. However, this should not signal the demise of the next generation of entrepreneurs. Depression forces the founders to fight or fly. Survivors can come out stronger.

AppDynamics flourished and moved to A Acquisition of $3.7 billion. This wasn’t my only experience with building in the downturn. In July 2020, while the pandemic was spooking institutional and individual investors alike, I launched my cybersecurity company, Traceable.

Pessimistic news headlines exaggerate market changes, but history proves that success is possible. With that in mind, here are four tips for startup survival:

Related: Lessons for the Young Startup Leader: How to Survive the Economic Downturn

1. Be tough about what customers want (and give it to them)

Over the past decade, easy financing has enabled Startups To scale in the absence of revenue. In many cases, promising technologies have not yet translated into products that people will actually pay for. With funding depleted, that luxury is gone.

This is a good thing. Now, you are forced to obsessively focus on what will actually increase revenue and bring in clients. Peripheral worries, bloated budgets, and side projects fade away as you struggle to stay in the game.

At AppDynamics, this started with a focus on a very specific target customer who was in dire need of our service. We went after companies, like Netflix, where app speeds were directly related to revenue. Then we simplified our feature set to focus on one problem: helping engineers troubleshoot the root cause of software sluggishness.

This went hand in hand with a fanatical interest in customer support. Almost every day for two months, I’ve been driving for 90 minutes from our office at to Netflix headquarters in Los Gatos to monitor our product in their environment and ensure that it delivers value. This focus enabled us to do something difficult at the time: extend our runway.

2. There is still money on the table. pick it.

Frothy financing is gone, but if you need the money, it’s still there – especially for early-stage businesses. Group A ratings may have peaked in 2021, but they still stand historically high. Investors have a huge amount of dry powder on the sidelines waiting to be invested.

insurance It begins by displaying important metrics. A growing client base, strong retention and low burn rates will open the door to financing opportunities. Likewise, it doesn’t help now to get too obsessed with your stock price or valuation multiples. Ratings go up and down. The important thing is that capital raising You need to build your . Startups that are able to stay in the game can redeem the rating in subsequent rounds.

There is a silver lining here, too. Since financing takes longer to secure, there is more time for due diligence. Startups can look for value-added venture capital that offers mentorship and industry expertise, not just easy money.

When it comes to how to spend that money, be strategic, don’t be harsh. Look up, and Negotiating with sellers who have an incentive to cut costs while everyone else cuts spending. Reducing dependence on expensive contractors and agencies, and seeking to bring in expertise within the company. Next, turn your attention to the most important resource in an economic downturn: your team.

Related: 5 Tips for Business Success in a Recession

3. Do not pause in key assignments

Many start-ups impose hiring freezes during downturns or resort to drastic layoffs. But there’s a fundamental paradox at play here: Without people, you can’t grow.

At the same time, recessions provide a huge employment advantage as competitors become fickle or die. Before the collapse of Lehman Brothers in September 2008, AppDynamics was struggling to fill every role. But then, we had a pick of talent. Immediately, Hard to find developers suddenly available. It is also easier to attract people from existing companies whose stock options and RSUs are underwater.

With limited resources, prioritize employees who can come in and move the needle right away. With a small team, I initially took on the HR and accounting duties myself. Instead, we put every resource into engineering, sales, and customer support—the critical flywheel needed to generate and increase revenue.

4. Use adversity – and transparency – to rally your team

Now is not the time for secrets or vulgarity. Your team can also check out the news and see what’s happening in the market; Tell them where the company stands.

I’ve been pretty clear about the metrics needed to reach the next AppDynamics funding round. We needed 20-25 new customers to secure Series B. Knowing that gives everyone a unique mission and sense of urgency. This was not a default target. The deadline was fast approaching.

Lots of communication It is also key. Too long a week to wait for updates when your runway is months, not years. AppDynamics’ comprehensive daily synchronization processes covered customer touchpoints, technical issues, and product challenges. With the harmony, motivation and dedication of the entire team to attract customers, we reached $11 million Series B.

In the end, not everything is more difficult in a recession. Some things get easier. In fact, some of the world’s biggest brands are proof that downturns reward innovation. Microsoft, Venmo Uber lived out their formative years during recessions.

Related: How to Succeed as a Startup in a Slow Economy

Ultimately, market stagnation removes distractions, amplifying problems that require immediate solutions. Smart companies can really adapt and adapt – with ruthless focus The right product for the marketFind money, acquire important talents, and build a solid culture of battle. This will be a test, but for founders who persevere, history is on your side.

Leave a Comment