Interest rates rise, markets fall. Inflation continues to haunt the economy as the supply chain continues its wild, chaotic swing.
As we look for hope in employment statistics and public market upturns, economists and experts debate exactly when NBER (the National Bureau of Economic Research, the government organization responsible for identifying a U.S. recession) will officially start using the “R” word. to pronounce . Companies and companies across the startup and venture ecosystem are trying to figure out how to get out of this downturn as (relatively) unscathed as possible.
As the broader economy continues to contract, uncertainty and fear permeate the industry that identifies itself as risky, innovative and forward-looking. Founders nervously watch their runways and think about how to reduce combustion to avoid lifting a flat or downward lap (or fold) in this environment. Layoffs are rife. A significant number of founders, even some of the most notable,are on their way to the exits.
Many risk firms, wary of seeing the valuations of public and private companies fall, shy away from their historically risky bets, advising their portfolio companies to cut spending and operate more efficiently, while holding their reserves for those in the hard. need.
Not everyone working in the market today may want to remember, but we’ve been here before. During both the global financial crisis of 2008 and the early days of the COVID-19 pandemic in 2020, businesses and VC firms alike looked for things to throw overboard to stay afloat. Many of the first items to go overboard were the ones these leaders claimed to care about most.
Rather than spreading money across different types of founders, investors relied heavily on pattern matching. Instead of taking a gamble on exploration, money was being ripped out of R&D investments. Resources for the development of the next generation of founders, operators and emerging managers slowed. Commitments to innovation, diversity and work culture quietly dissolved.
If we want to emerge from this downturn more resilient, sustainable and profitable, we cannot afford to repeat these mistakes. There are four lessons we can learn from past recessions to take advantage of the one we are in:
Trust the tools you’ve made
The most frustrating thing about an economic downturn like this? No one can say how long it will take. Like pilots flying in heavy clouds, we must rely on our navigation aids to guide us to the other side. For startups and venture firms, these tools are our financial models, KPIs and core values. We’ve created these tools to help us grow, and now it’s time to trust them to get us where we need to go.
Things that are easy to measure and that speak to our bottom line immediately tend to grab the most attention in difficult times. But we must also pay attention to our missions, visions and core values to keep us steadfast in difficult times.
Complex initiatives that reflect our values (such as diversity and inclusion, professional development, or creating a family-friendly culture) are often the first things to give up in turbulent times. But our obligations are not a luxury that holds us back. She to be the way forward. To get out of the cloud cover not just right side up, but ahead of the crowd, it’s necessary to continue to prioritize the things that matter.
This is not the time to panic or correct. Now is the time to keep our eyes on the horizon and rely on the tools we’ve created to guide us.
Don’t just cut – look for what to add
In an economic downturn, making significant cuts to external costs quickly should be one of the first steps for any responsible leader. That’s clear enough. What is less clear to many budding leaders is that: to invest putting money into things that provide real value to customers or employees can yield meaningful ROI.
Crisis events help us show who we are.
Customers are not going to pay for something of minimal value during a recession, or if one is imminent. If we feel the squeeze of the economy, so are they. Giving people value for money is the way to earn loyalty.
During the global financial crisis, my company TaskRabbit suddenly became a primary source of income for thousands of unemployed Americans. We’ve invested heavily in product features to help them earn more on the platform and take more control of their time. By the time the economy started to pick up again, thousands of our Taskers were earning better incomes from their TaskRabbit business than they were before the crisis.
If you’re not sure where to invest to pump up value for your customers, it’s a pretty good indicator that you need to do a little more work on your offering. Difficult times put companies with little to no product-market fit in the spotlight.
If your product isn’t able to add substantive value during this recession, take advantage of this tight time to get out there and talk to your customers. Understanding their needs now can help you emerge from this period of uncertainty with an offering that has a greater chance of scaling up.
As a managing partner of a venture firm, I now think a little differently about our responsibility to add value to our “customers”. VCs have two groups of clients: founders and limited partners. As I wrote in “How Venture Capitalism Should Develop in 2022 and Beyond,” this is a period of major disruption for the venture capital market. A healthy future for the entire startup ecosystem will be powered by the diverse class of investors and funds that are now emerging.
It may seem counterintuitive to invest resources in your competition during an economic downturn, but that’s exactly what more experienced venture companies and managers should be doing during this downturn. By continuing to provide mentorship, access, operational resources and capital to emerging managers, the entire VC community will enter a new era.
Carry a small crisis with you to the other side
Memories are short, especially after hectic times full of adrenaline, fear and urgency. After a leader has taken your business through a crisis, the last thing a leader wants to do is dwell on it. But crisis events help us reveal who we are. Those revelations need to be ingrained into your company’s culture to build your resilience for the next scary event (and there will always be another).
To build TaskRabbit in the shadow of an economic disaster, we had to learn to be sloppy. In the beginning, our monthly marketing budget was a comically low $5,000.
When companies froze their hirings around us, we decided to prioritize an important hire: our first marketing generalist. We brought in a candidate who was way above her weight class, a generalist who could figure out how to make just about any project from any part of the marketing stack. This hire was not only a crucial driver of our growth strategy. Her approach contributed in many ways to the culture and traits we were looking for in future hires. Her guts, inventiveness and willingness to get into the trenches became something we looked for in every new hire.
Only surviving a crisis is a missed opportunity. The pressures of the current downturn will test every aspect of what we do: who we hire, what we build, how we set goals. The adaptations we make to survive are full of lessons. Pay attention, take notes and keep those lessons handy once the money starts flowing again.
Recognize your core competence
The startup ecosystem has existed for years in a founder-centric context. We’ve seen bold actors with big visions that excite the hearts and minds of investors, employees and customers. This dynamic has given our industry momentum, not to mention a lot of media and cultural attention. It has led to some of the best, most impatient minds coming to build things. It has also led some inexperienced entrepreneurs to exercise too much power over people’s livelihoods, causing a number of promising young businesses to shut down (not to mention embarrassment and turmoil among some businesses that managed to survive despite poor leadership) .
It has also spawned a wave of patterned investments in founders who looked like the founders who came before: young, hoodie-wearing, mostly white, mostly male founders. While founders with great potential wait on the sidelines for scraps of venture capital, and talented operators wait in the wings for founders who never leave.
For all the flaws of our founder-oriented culture, there is something great that must be preserved.
An economic downturn is an opportunity to set the stage. As The New York Times’s Erin Griffith reports in “The boy bosses of Silicon Valley are on their way out,” some of the boldest names in tech are leaving their posts. What if we ask our innovative spirit, how do we fill that stage with a more diverse cast for the next show?
For all the flaws of our founder-oriented culture, there is something great that must be preserved. We celebrate the imagination here. We look for ways to say yes to unknown things. We believe that a better future is possible and we want to help shape it.
But not everyone who has an idea and gets it off the ground is the right person to scale it up. In fact, that is rare. Starting a business, scaling a business and running a successful business are different skills. Some founders have them all, yes. But many don’t. And that’s okay.
Now it’s time for a little soul-searching about where you are. Do you do what excites you? Do you need to build something new? Every founder at the top of a company should ask themselves these questions. Every operator should do that too.
Chances are there are a few next businesses waiting to be built in the minds of people who are stuck scaling their last one. There is also a good chance that some of the current founders and operators could become the investors who open doors for the next generation of founders.
Decisions are enlightening. We choose to spend money here instead of there. We prioritize making this hire rather than that one. We choose to move away from one idea and double down on another.
An ongoing economic downturn is an extreme pressure test for an industry that values rapid growth. The many difficult decisions we make today define who we really are. They reveal our true character and our true capacity. For founders and investors alike, this may be the reset needed to take us out of the status quo and set a new precedent for building the future.
Leah Solivan is the founder of TaskRabbit and the general partner at Fuel Capital.