6 Tips for Startups to Weather the Downturn in 2022

Key lessons from previous downturns can help you succeed in 2022.
6 Tips for Startups to Weather the Downturn in 2022

It’s easy to get caught up in all the bad news of late. Just when it seemed like things were getting better with the pandemic winding down, markets started to tumble. With so much happening in the world, it’s hard (even for the experts) to figure out what’s going on. 

These are volatile times. So much so that big names in the industry are referencing the great recession of 2008 and the dot-com crash at the turn of the century.

It’s not just founders and CEOs ringing the alarm bells, but also investors. Bloomberg reported that Sequoia capital – the large VC fund, sent out a briefing to their portfolio warning of the tough road ahead. This has people unsettled since Sequoia has a pretty good track record of preparing companies for the worst with their “RIP Good Times” briefing in 2008, “Black Swan” in 2020, and their latest one, which refers to the current downturn as a “crucible moment”.

Now, it’s not all doom and gloom as many SaaS companies continue to grow faster than ever. Maybe this is a lagging indicator, maybe not. Whatever the case, it pays off to be ready for any scenario. Money will be tighter, so startups will need to do everything in their power to focus on healthy growth. The good news is that there are many examples of great companies we know and love that weathered previous market storms and prospered once turbulence subsided.

In fact, Slack, Asana, WhatsApp, Uber, and Venmo were all started around 2008. What’s more, since the economy tends to move in cycles, what we’re experiencing in 2022 is not entirely new.

So what does this mean for startups? Here are a few key lessons from previous downturns. 

1. Do more with less

When times are good, the old adage of ‘use your resources wisely’ tends to go get thrown out the window quickly. Years of low interest rates and quantitative easing flooded the market with money, bloating valuations for startups, leaving them with more money than they know what to do with.

Investors with an appetite for risk allowed companies to burn through cash with growth as the imperative. But with the change of tide, investors are placing fewer bets and switching their focus to the clear winners.

So…it’s time to go on a spending diet. Buy time to figure things out and ideally, you should have at least a 12-month runway to focus on the metrics that matter

2. Focus on your fundamentals

What problem are you solving for your customers? This should be the guiding question for the entire team, especially during hard times. Companies that aren’t tuned into the signals provided by customers risk turning into the typical crash and burn story. A laser focus on product-led growth (PLG) that is in line with your mission as a company provides tangible value for customers. This pays off in the long run since startups need that stable and sustained customer base to push through the downturn.

This is echoed by Michelle Bailhe – a partner on Sequoia’s growth team, stating that in some cases “it’s better to keep your foot on the gas in your core business because you can come out even stronger”. 

3. Stay close to your team 

Startups and their team dynamics can feel like those of a sports team or a family, which means you need a culture of trust. Keeping morale high during tough times can make the difference between making it to the finish line or burning out halfway through the race, as it may not always be obvious that the company will make it through a downturn.

Place priority on the attention you give to your team and be transparent about how things are going. Strong internal relationships are important, especially if it comes down to cutting costs in ways that may affect everybody at the company. 

4. Do things that don’t  scale

This counter-intuitive quote by YCombinator co-founder Paul Graham goes against the idea of hyper-efficiency, but if you’re a startup, not everything is about being as efficient as possible. Oftentimes, creativity is what sets you apart and serves as an important competitive advantage.

Startups don’t just succeed. They need some type of push to get things going, and it’s those unexpected efforts that draw attention to you and get the ball rolling. If that means speaking to each and every customer to get product feedback or providing one-on-one onboarding for your high potential customers, then that’s just what you should do. It may be the key to building valuable relationships with your customers.

5. Invest in good data 

Without good data, it would be like navigating a storm with no instruments to guide you. In leaner times, you have to be able to make decisions quickly with the right data at your fingertips. If your company is anything like ours, you probably have multiple data silos that constantly need to connect in the context of the customer. And that’s a constant process that requires a company-specific data strategy. At our recent SaaStock local event, our guest speakers made it clear that you need to invest in understanding your data from the get-go. Not knowing where you need to invest or which costs to cut will hold you back. 

6. Don't be too hard on yourself

Often we tend to overlook the human impact of market turbulence. At the end of the day, business is about people, and if we’re not performing well, neither will the business. Whether you’re the founder, a team leader, or an employee at a startup right now, remember to practice empathy with your fellow colleagues - and yourself.

With pressure from all sides, your ability to perform can suffer. Even worse, it can be detrimental to the performance of a team if it’s obvious that a team lead or manager is losing control of the situation. Develop a culture of open dialogue and learn how to use vulnerability to your advantage.

What’s Next

Remember that good times are never too far off. But in the meantime, take advantage of this moment to invest in better processes, eliminate wasteful spend, and double down on delighting your customers. Obsess over the core metrics and KPIs that show success, and invest that same energy into your people.

If you’re part of a startup or scaleup check out the Cledara blog for more content on how to better run your business. 

And if you’re curious to learn how software management helps startups and scaleups succeed in any market condition, read a few of our success stories.

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Jenny Liu
Head of Finance @ Marshmallow

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