Two-plus years of the pandemic. Trading through the challenges of Brexit. A global energy crisis triggered by the war in Ukraine. And now the departure from office of the second British Prime Minister in as many months, having just triggered an unprecedented fall of pound sterling. How can tech startups navigate this degree of uncertainty? Getting a grip on your financial situation can help you navigate uncertainty as a tech startup in the UK today.
Building a Business in Uncertain Times
There is no denying that the last two years have been turbulent for startups in the United Kingdom. The pandemic slowed down a lot of business activities and, in some cases, brought trading to a complete halt.
Owing to the flexible nature of their business, many tech startups continued to build and iterate their products and solutions. At Numbersmiths, we never stopped working with startups, investors, and venture capitalists (VCs) to secure another round of funding. But what about the aspects of business outside of software development and funding rounds? How can you and your business navigate one of the highest levels of uncertainty our generation has faced to date? The answer is simple – by understanding your company’s financial situation and creating a “rainy-day fund” to start with.
Finance First
One of the recurring themes of our blog is highlighting the importance of understanding basic business finance so that you can build resilience. We’ve talked about working capital and cash flow as well as highlighting the differences between accounting and bookkeeping. How does this knowledge help you navigate uncertainty?
Navigating Uncertainty as a Tech Startup
Here is how. Over the past two months, it has been near-impossible to predict economic policy coming out of Downing Street. Plus, as soon as plans had been announced they were retracted following adverse market reactions. Pound Sterling had a severe wobble. In the days leading up to the resignation of Prime Minister Truss, things started moving even faster. My point is, as a startup you can’t influence policy immediately.
However, you are in control of your own ship (yes, staying with the maritime theme here). Navigating uncertainty starts with understanding where you stand and how heavily you are affected by the recent changes. If the coronavirus pandemic has shown one thing, it is the importance of having a rainy-day fund, enough capital to cover your incoming bills and pay salaries for a few months. Even if you are in an uncertain economic environment, this fund can give you a bit of thinking time during which your business can adapt to the new situation.
Knowledge is power. How badly is your business affected by the recent wobbles of the British currency? And how badly are your customers suffering from this? It’s not a rhetorical question, but an important consideration for tech startups right now.
Prioritise What Really Matters
Most startups and early-stage companies develop in phases. For example, most start with the proverbial big idea, possibly on the back of a napkin. By the time you come to look for seed funding, you have likely done some development and even approached potential customers. Perhaps you have even made your first sales. Although these are great achievements, your startup is not yet at the stage where you need a big sales and marketing campaign.
Instead, prudent investors would expect you to achieve more (sales and development) with less, such as a smaller team and less funding. Venture capitalists are certainly looking to see that founders understand what matters most at which stage of development.
In the very early stages, it is more important to create an excellent product-market fit than it is to throw time, money, and resources into marketing. You can prove your business model with few resources. Demonstrating that ability to prospective investors is more likely to convince them to invest than a large volume of sales followed by cancellations because the product did not deliver the promised features or benefits. Understand what matters most to your business and to your customers right now.
Control What you Can
As a founder, you have limited power to influence your economic environment, and there is no perfect time to start a business. In times of great uncertainty, it is important to have a thorough grasp of the aspects of your business that you can control.
Understanding your financial situation is one aspect. Being able to qualify how ongoing uncertainty will influence your business is another. Lastly, developing the discipline to prioritise the most important requirements for your startup right now will demonstrate to investors that you have what it takes to build a successful company – no matter who resides in Downing Street by the end of the week.
Talk to us if you would like to know more about navigating uncertainty with an early-stage business.