How to Make Sure Your Startup Survives 2023

There’s a lot of uncertainty in the market right now.

Investors are feeling it too and writing fewer checks at lower valuations. Signs point to this potentially being the “new normal” for a while.

AI is exploding, but basically everything else has slowed down. At the same time, there’s a lot of startups that raised in 2021 - 2022 who will be in need of additional capital in the next year.

The hard truth: a lot of startups will die, or be acquired for lower valuations than they last raised at.

Here’s how to make sure that doesn’t happen to you (and no, it isn’t to just start mentioning GPT-3 in your deck) 👇

Read time: 5 minutes

🧠 On My Mind

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⚡️️ 9 Ways to Keep Your Startup Alive

Know Your Existing Investors

If you’ve raised capital already then figure out what will make your existing investors excited to put more in.

Don’t know the answer to this question? Ask them what they want to see from your startup.

During a downturn, investors bias more towards supporting existing portfolio companies. Part of this is the sunk cost fallacy, but it’s also true that doubling down on existing bets can be less risky for them because they have access to more datapoints about how the startup executes.

The same is true from the founder’s perspective, it’s often easier to secure additional capital from existing relationships than trying to form new ones.

Regardless, they’re going to have a lot of portfolio companies asking them for follow on capital later this year, and limited capital to use for following on.

Make sure you’re a bet they feel good about making again.

Raise Soon(er than you think you should)

You’re much better off trying to raise now than in the fall or early next year.

If we do fall into a recession, it’ll be much more difficult for VCs to raise additional capital from their LPs this year. LPs will simply be allocating a smaller share of their capital to venture and, instead, focusing on lower risk asset classes.

Considering the amount of startups that last raised in 2021 - 2022 was an all time high, this is a perfect storm.

In practice, it will mean that a ton of startups will be looking to raise capital from investors who are trying to make their funds last longer (aka they’re writing fewer, and/or smaller checks).

This leaves you with two scenarios:

• Raise “too soon”

• Raise is a hyper competitive environment

Both likely mean more dilution than you’d want, but if you kick things off now, the worst case outcome is that investors will get to see your progress over a longer period of time (which, if you’re making good decisions, executing, and growing will only serve to make investing in you appear less risky to them).

Reduce Burn (more than you think you should)

A lot of founders cut burn in the last few months. Even if you did, do it again.

Investors told me and my cofounder last year that “founders often don’t go far enough the first time.”

One key thing, keep building your product and (efficiently) growing revenue. But cut as much else as you can.

Also, don’t just make a spreadsheet and map out the impact of cuts. Assume that macro conditions will get worse in ways that are hard to measure.

It sucks to make cuts but your priority is keeping the company alive.

Be Decisive AF

If you’ve been reading this newsletter for a while, you’ve probably already seen me say that speed is the only true advantage startups have.

In an uncertain macro climate, that becomes even more true.

If you make 70% of decisions correctly quickly, your startup will do better than if you made 80% correctly but slowly.

Also, make the brutal decisions. If you need to pivot, accept it and do it.

Going halfway down the right path won’t lead to half success, it’ll lead to your investors asking for the rest of their capital back.

Kill Your Ego

Founders hate considering the option of a down round. It feels like a failure.

But the real failure is when your startup dies.

I’d recommend not hanging onto a target valuation you had in your head last year.

This can also be a good time to re-evaluate, do you believe in your startup and its mission?

You’ll know the answer is truly yes if you’re willing to do whatever it takes to achieve that mission, even if it’s unpleasant.

A down round doesn’t kill a startup, running out of money does.

Only Hire “A” Players

Over 300,000 people have been laid off in tech in the last 12 months. There are a ton of great candidates out there right now actively looking for their next thing.

Not all big tech employees will be a fit for a startup (I’ll write about how to evaluate this in a few weeks) but many will.

Your job is to hire the best available person for any role you open up right now. It’s not the time to take a chance on unproven talent.

When spending capital on a fixed cost like a salary is more expensive like it is in a down market AND there are tons of great candidates available, no role is urgent enough for you to sacrifice finding the right fit.

Do a 360 Founder Review

Startups aren’t families, they’re sports teams.

Look at your roster, including yourself.

What are you, honestly, good and bad at?

Ask this of yourself but also get candid feedback from the team members, investors, and even your friends and spouse. Think about how those strengths and weaknesses map to your current responsibilities.

Don’t hang onto parts of your role that would be better off in the hands of someone else on your team.

Play to your strengths.

Focus on Unit Economics

Startups don’t need to be profitable in the early days, they should be investing in growth. But in an uncertain market, you need to be able to become cashflow breakeven if it becomes necessary.

Turn your attention to your burn multiple and the unit economics of your business. Are you actually making money? If so, will you continue to even if you have to cut your marketing spend?

You could even go as far as to say to (mostly) ignore growth until you get this figured out to some degree. As a growth guy, this is painful for me to write but it’s helpful to frame it this way at the moment.

Don’t Play Defense

Once you’ve done all of the above things, it’s time to attack.

Your competitors are likely also feeling the struggle and cutting back. They may be repositioning or abandoning parts of their business entirely.

This is your opportunity to gain market share.

Re-evaluate your target market. If you’re in a comfortable position, consider purchasing distressed assets.

📚️ Founder’s Corner

• NFX shared a great primer on founder psychology during a downturn

• Improve how you communicate with your cofounders, investors, your team and more during these uncertain times

• Meet other founders and share strategies with each other at Launch House