Startups strategies should work in good times and bad

Startup founders should expect that it will take seven or more years to exit their company. Some get lucky and the exit comes more quickly, but it’s foolish to plan for luck. Over seven years it is almost inevitable that the markets will turn bad at some point. If I think back over the sixteen years I’ve been investing in startups the market for private company investing was tough from 2000-2004, from 2008-2011 and is getting tough again now. At no point have we gone more than four or five years without hitting a tough point when investor sentiment goes south.

To quote Foundry Group partner Seth Levine, when the markets turn:

the growth imperative shifts to a profit focus, [and] companies with high burn and weak operating metrics can get stuck in the lurch

Moreover, as Seth also notes, when the shift comes, it comes quickly, and there’s little time to adjust. Hence the smart thing for founders to do is not to get stuck in the lurch. Where there’s a trade off to be made, and there is in most companies, that means opting for stronger operating metrics at the expense of growth, boring as it may be.

It’s complicated in practice of course and every strategy needs to be adaptive, but however frothy markets are, they always turn at some point and if the plan is to build a big sustainable business it’s more important to be able to survive the transition than to maximise valuation and growth while the going is good.

  • Varatharajan

    Bill Gross, founder of Idealab, said that timing is very important for startup success. Wonder if the above blog’s view can help VCs gauge investment timing and for startups to catch the transient window for raising capital at much better valuations.

  • TuffTookas
  • Divya Ramamurthy

    You’re right! Sometimes, you can never predict the market and its fluctuations. It could ruin business or it could increase your progress. The only way to deal with this ongoing shift is to always have a strategy. You always need a plan to fall back to if something goes wrong or your business isn’t doing great.
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