It’s no secret that these last few months have been tough in the tech industry. The economic climate, layered with the recent banking industry pitfalls, have proved to be more challenging than we expected.
In this article, I’ll cover the reality of the macroeconomic climate over the last two years. Then, I’ll dive deeper into why founders are struggling right now. Finally, I’ll talk about the value of mindset and what you can do moving forward to come out stronger on the other side.
How We Know
As a service provider in the tech industry, we have a unique purview. At any given time, we work with 30 different clients from various industries in markets from coast to coast. Because of our scope, we can easily recognize patterns and trends among clients. Throughout the last six months, we’ve noticed that most of our clients are facing similar issues. The economic challenges are not limited to one city or isolated to a particular industry. Simply put, we’re all in this together.
After 25 years in tech, it’s never been so obvious to me how tied technology is to the macro-economic climate. High growth tech companies need funding to exist. Whether it’s seed funding to get your idea to a place where you can sell it, or later stage funding to increase headcount, tech companies rely on venture capital to both fuel and scale their businesses.
Where We’ve Been
Last year, we saw funding slow in the latter portion of the first half. But in the second half of the year, there was a very apparent correction in the market — funding stalled. By the time we reached Q4, it was obvious that everyone was experiencing greater fiscal rigor than ever before.
Companies cut spending. Budgets were reallocated. Campaigns were paused.
When I talked with clients and tech partners about business in Q4, the overwhelming response was “not great.”
- VCs pulled back on checks to fund companies.
- Funded founders tried to stretch their money further.
- Founders hustled for checks that would’ve been a slam dunk earlier in the year.
The numbers don’t lie.
If Q4 made us question market projections and the state of the economy, Q1 validated those concerns with data.
Venture funds and economic reports released early in the year confirmed what we felt in Q4. In early February, I attended events in both Indianapolis and New York where the message was the same. The economic uncertainty is unsettling, and founders are struggling. Your pride could no longer allow you to deny the facts. It was a reality check that forced us to recognize the current state of tech and funding.
Why Founders are Struggling
In addition to having product-market fit, founders now have to prove that they can turn their idea into a successful business. VCs are looking for increased “investability.” Founders can’t rely solely on past performance to indicate future success.
As a founder and CEO, I empathize with these companies.
Prior to the current economic situation, most founders could dedicate time to either raising funds or running a healthy business. Now, there’s no option of either/or. When you’re not raising funds, you’re nurturing relationships. And when you are raising funds, you must continue to evolve your product.
You must stay laser-focused on maintaining a healthy business to attract funding from VCs and keep your head above water.
But, there is still funding and opportunity available for early-stage companies.
Later-stage funding, however, has slowed because of decreased valuations and VCs requiring more tangible business success versus the promise of success. And while early-stage companies will need to prove more sustainable business rigor, there is money out there for quality founders with sound ideas in the right market. And VCs are hungry to find these companies.
So while funding has slowed, I’m optimistic because VCs can’t sit on the capital that’s been raised. It must be deployed.
I’m extremely optimistic that these two worlds will collide — better yet, they’ll collide in this calendar year.
Must-have products will benefit.
Throughout Q4 and Q1, there’s been a lot of talk about must-haves versus nice to haves. In times like these, you have to identify what makes your product essential. Founders must determine, and potentially adjust, the audiences and markets to which your product is a must-have. It’s likely how you talk about your product in Q2 of 2023 is different than Q1 of 2022.
I don’t believe that products are deemed either essential or disposable. But I do believe there are uniquely essential plays for individual products. It’s up to the founder to discover the right angle and amplify the message to the right audience.
Where to Turn for Help
I get it — founding and scaling a company is challenging and stressful. The only way to be successful is to surround yourself with people who can help you do more with less.
In times of abundance, tech companies hire and grow in-house talent. In times of scarcity, however, you should turn to fractional excellence.
Fractional partners can be immensely valuable in:
Fractional partners reduce the stress and costs of onboarding new team members. And the right partners will give you access to accelerated, if not immediate, excellence. Aligning yourself with fractional partners helps you avoid making a long-term commitment. When things do get tight, the burden is smaller and you can navigate changes more gracefully.
Right now, you don’t have the luxury of either running the business or raising funds. Both activities must be done in tandem, requiring time and resources. When you don’t have the time, lean on fractional experts.
We’ve acknowledged the reality. We’ve commiserated. And now, it’s time to adjust and make our next move. In tough times, the successful companies are the ones that reorganize and shift their strategy to take control of the situation.
Above all, we must keep moving forward.
Personally, I’ve never experienced a market where there’s been so much unpredictability. While you might have annual goals, you need operate in monthly sprints and be flexible. If you can break down your year into more digestible increments, then you can identify success sooner and repeat what’s working. On the flip side, you can see what’s not working and fix it before it really stings.
It’s time to get back on the offensive.
If you spent the last six months formulating a plan of defense, now is the time to build your offensive game plan. In other words, what’s your optimistic plan?
Defensive planning means preparing for worst case scenarios. This type of plan outlines what your business strategy looks like in a poor economic climate. Your defensive plan is how you’ll handle the worst, most unpredictable days, months and quarters.
But by now, you’ve developed a plan to make your product essential. Your offensive plan identifies your plan for when it takes off. Personally, I’ve developed a lot of healthy business and leadership habits through offensive (or optimistic) planning. I’ve asked, “why aren’t we doing that?” instead of stating, “there’s no way we can do that.”
Naturally, I lean into a glass half full mentality. I don’t ignore what’s happening, but I choose to see the light at the end of the tunnel. I’m fortunate to be surrounded by a great team that continues to do great work to help founders bring their products to life, as well as friends who I can lean on for support and expertise.
Times like these test our resilience, sharpen our skill sets and transform our mindsets. While it’s tough right now, I’m certain that we’ll come out on other side stronger than when we started.