That changed a bit when we saw a couple of missed IPOs and some ad-tech fails. Now things are slightly more pessimistic, which suits me just fine. This business seems to prevail better when the odds are stacked against it.
It’s amazing just how quickly the tide can change. For many months it was all puppy dogs and unicorns in the press, with people talking about the strength of technology. However, the last few weeks you could see a sea change. The crest of that wave came last week with a “Twitter sermon” by venture capitalist Marc Andreessen on the impending “vaporization” in tech.
He’s right. Young startups have been feasting on free money, spending on employee perks and launch parties like there’s no tomorrow. If they keep spending like this, there will be no tomorrow for most of them. I don’t necessarily think pure bootstrapping is the way to go, but companies need to be mindful of a rainy day. After all, even Rome fell.
San Francisco has regained its popularity with startups, quickly eclipsing the Valley. New York is thriving, and so are Boston and Los Angeles. There have been some high-profile exits in the last two years, which have the sharks swimming in the waters, but when you see the sharks you know there’s about to be a lot of blood.
Tech investors are fickle, and sometimes they invest in vision while most of the time they invest in revenue-driving ideas. The pendulum does swing back and forth from year to year, though, and the last few have seen angels take over the early-stage load while VCs focused on later stage, growth-driven companies. From what I can tell, the angels are getting tired of investing in ideas and are starting to hold back. The VC’s aren’t excited to take over early stage again, so that means the money is about to stop flowing unless revenue is clearly in your sights. That translates to fewer dollars flowing into early-stage companies, and companies with a high burn rate quickly running out of cash.
So what does that mean for your prospects of driving a successful exit in the next few years?
It means you have to be smart. Corporate focus needs to be on generating revenue and reducing the burn. You have to dive deep into your company to fully understand where costs are and where opportunity lies. The executive team has to be aligned and pointed in the same direction, and they have to foster a culture that is a focused as they are.
In situations like these, marketing becomes very important to clearly define the position of the business, while product marketing can serve to ensure your offering aligns with the needs of your customers. There can be no overstating the value of that alignment. You have to be willing to do what the customer needs, and marketing tends to own the customer relationship, so they quickly become your lifeline to success.
Your marketing team should be capable of stating your differentiation vs. the competition in three sentences or less. In most cases, if you can’t state your differentiation clearly and succinctly, then you don’t fully understand the business. It’s about simplifying the story and making sure your target audience can understand it as well.
Startups need to get their burn rate under control and they need to be focused on profitability, or at least the chance to make money. Treading water is no way to build a business: If a company is strategically investing in growth, that is far different from investing in staying afloat.
I hope the impending market correction happens, because I find those situations tend to create the best businesses.