Recently, Mark Suster wrote an epic, must-read post about startup valuations and current funding climate. Go read it, and then bookmark it, because you’ll want to re-read it several times. Also, go read my three related posts about changing climate, milestones, and figuring out how much capital to raise.
My biggest takeaway is that founders need to be razor-focused on milestones.
Instead of running forward into an uncertain future, founders need to compute backwards from the milestones.
In reality, there are only two milestones for early-stage companies: next financing or profitability. Sure, there is also M&A, but this is not really a milestone you can go after.
Become profitable. Let’s tackle profitability first. If you can, just get there. This is really a magical place, because if you are profitable and growing, you are in control of your destiny. You don’t need to raise money to survive.
Raise more money. If you can’t get to profitability, you will need to raise money again. In the current climate, it is going to be more difficult. This means three things:
- Cut costs & plan your burn.
Stretch your current capital as much as you can. Cut costs now. Do careful analysis of your burn, and trim down. Accurate projections and estimations of your burn are absolutely critical.
- Set correct milestones.
Spend a ton of time planning the milestones and make sure that if you hit them, you will make more capital. Planning should include comparables and competitive analysis. Talk to prospective investors and insiders openly – if we reach these milestones, will you fund us? The more realistic your milestones are, the higher the probability is that you will hit them and will receive more funding.
- Measure your progress.
Set up frequent checks and track your progress against the plan. For example, if you need to hit the milestones in six months, check every two weeks that you are making meaningful adjust accordingly.
By nature, founders are optimists and believers. However, sheer optimism is usually not enough to carry a company.
Carefully evaluate your situation, come up with a plan, set milestones and make sure you hit them.
Image credit: CC by Keith Cooper
