Current conversations with founders: How to adjust for the current Funding market

Answers to some founder FAQs about the current market

This post is a quick follow-up to the post from earlier today. During my confidential conversations with founders, several questions were asked in almost every conversation. These are the most common questions:

• Should we focus on new customers or expand revenue with current customers?  This question was asked surprisingly often. It depends on your resources, ROI on activities, and what will derisk your business the most in the short run. Are investors worried about your unit economics? If so, expand revenues with your current customers if it increases gross margins and the LTV of your current customers. Alternatively, if investors are concerned by your go-to-market strategy, you may want to focus on new customers.  

• How do we adjust our plans given the current economy and funding environment?  The answer varies by company but for most pre-PMF companies you can reduce your burn by only retaining people who build the product or sell the product. Anyone else that you keep should provide significant leverage for those two groups.

• Who can help our founding team level up?  Despite the market softening, there is more demand than ever for coaches. The best ones seem to have full calendars. The solution is to work your network to find knowledgeable advisors and coaches. Alternatively, you may want to start a peer group with founders facing similar challenges.

  

• What revenue run rate do we have to hit for the next round? There is no specific run rate that will make you investable. The larger your run rate is, the more likely you will get a meeting with investors. What is more important is the story behind the number. What is the quality of the revenue? Is it repeatable? Does it produce gross margins? Can you continue to scale revenue in a cost effective way? If you can't answer these questions, you will have a hard time raising a growth round in this environment.  

• Are engineers getting easier or cheaper to hire?  No, they are not. Individuals rarely agree to a lower salary than their previous salary for a similar job, many engineers are taking downtime to recharge before they decide what company to join next, and there are still many early-stage start-ups hiring.