The tide is turning for some startups. I have seen the worried faces in Silicon Valley — and they are not without reason. Funds that were easy to snag in the past are now harder to secure.
According to The New York Times, venture capital funding dropped 11 percent in the first quarter of 2016 compared to a year earlier. Investors are more cautious these days. They are spending more time on careful analysis before signing off on funding.
As a company founder myself, I am always rooting for startups to succeed. But if startups want to seek outside funds, they will need to learn to endure added scrutiny from investors.
I have weathered two technology recessions. There were tough moments, to be sure. But I found that there were many valuable learning experiences during those downturns. Those learnings helped me get to where I am today, leading the team at Aha!
Unfortunately, I have seen many startups overspend when their coffers were flush — and lose their way in the difficult times that followed.
Some startups making headlines today are not only repeating those mistakes, they are missing their biggest opportunity — to focus on profitability.
Too many startups become preoccupied — even obsessed — with raising money from outside investors. In the process, they run the risk of forgetting their purpose for starting in the first place. In their pursuit of money, they waste their opportunity to offer something of real worth that will make a difference and improve people’s lives.
Startups that prioritize creating value instead of chasing after funding are able to:
Stay true to their vision
Putting strategy first ensures a clear plan of action that informs every move. These are the startups that will be better able to react and make smart decisions when the stakes are high. When funding trumps vision, startups waste time and momentum. Blown off course, it can be hard to find a way back.
Focus on real value
Successful startups invest in making sure the product does not merely meet customer needs, but that it is the best offering it possibly can be. They train their attention on offering lasting value and discovering their competitive advantage in the market — not on attracting investors.
Stay close to customers
The only way to solve a customer’s problem is to spend time listening and asking questions. Entrepreneurs who focus on getting to know their customers — not chatting up VC firms — can tune into customer needs and find meaningful solutions.
Build a strong culture
A lasting and profitable business requires a strong team that can unite around a shared purpose, not a paycheck. It is no small task to find people have the right combination of talent, character, and experience. Startup founders who understand this put time and energy into building a cohesive team that can weather the ups and downs.
To gain strength for the long haul, startups are better off learning to be profitable — not focusing on how to get rich quick.
The lack of funding in today’s market should not be such a frightening prospect for those who have a strong plan and the gumption and perseverance to stick to it. Instead, it should be seen as an opportunity to focus on what matters most: building a successful product.
Only time will tell which startups succeed and which ones fizzle out. But I predict that the startups who can see past the current fundraising environment and focus on vision, value, and profitability will be the ones that ultimately survive and thrive.
What do you think of the current environment for startups?