These 4 Pointers Will Help You Scale Your Startup During a Recession.

I started my first business in the midst of the Great Recession. When Sequoia Capital published its now-famous RIP memo in October 2008, AppDynamics had ten employees and a product implementation issue with Netflix, our second client. Around us, a lot of early-stage businesses failed as funding vanished. I observed as our window of opportunity shrank to a few months. I was constructing during a sad moment.

Fast forward to 2022, and we find ourselves in the same situation with dire cautions from investors. Call it a "startup recession" or a lack of VC funding, but the market is weak and inflation is rising. But the next generation of businesspeople need not be doomed as a result. Founders must go into flight or fight mode during downturns. Those that survive can come out stronger.

AppDynamics prospered and eventually was acquired for $3.7 billion. That wasn't my only encounter with construction during a downturn. While the epidemic scared off institutional and retail investors alike in July 2020, I started my cybersecurity business, Traceable.

Market shifts are overstated in doom and gloom headlines, but history shows that success is attainable. In light of this, here are four suggestions for surviving as a startup:

1. Be ruthless about anticipating client needs and providing them.

Easy financing over the past ten years has allowed businesses to grow even in the lack of income. Promising technologies frequently fail to produce goods that consumers will actually buy. That luxury is no longer possible due to dwindling financing. And that's advantageous. You are now compelled to obsess over the things that will truly generate income and draw in clients. As you struggle to stay in the game, peripheral issues, bloated budgets, and side projects become less important.

At AppDynamics, that process began with focusing in on a very niche target market that was in dire need of our solution. We targeted businesses whose application speed directly correlated with income, such as Netflix. Then, we condensed our feature set to concentrate on a single issue: assisting engineers in identifying the underlying causes of sluggish software. This was coupled with obsessive focus on customer service. I travelled nearly every day for two months from our office in San Francisco to Netflix's corporate offices in Los Gatos to check on our product there and make sure it was providing value. We were able to prolong our runway thanks to this emphasis, which at the time was a challenging feat.

2. The money is still on the table. Take it up.

Although frothy funding is no longer available, there are still sources of investment available, particularly for early-stage businesses. Despite having peaked in 2021, Series A prices are still very high. There is a huge amount of dry powder available to investors that is waiting to be invested. Providing relevant indicators is the first step in securing investment. Funding opportunities will become available as a result of a burgeoning client base, high retention, and low burn rates. Likewise, obsessing over your stock price or valuation multiples is not advisable at this time. Valuations fluctuate. It's crucial to secure the funding you require to launch your firm. Startups that are able to compete can recover valuation in later stages.

3. Don't postpone important hires.

During recessions, many entrepreneurs impose employment freezes or resort to mass layoffs. But there's a basic paradox at work here: You can't advance without people. At the same time, when competitors become wary or disappear, recessions provide a significant recruiting edge. AppDynamics was vying for every position before to Lehman Brothers' collapse in September 2008. However, we had a choice of talent after that. Hard-to-find developers are suddenly available right now. Additionally, it's simpler to recruit employees from reputable firms whose stock options and RSUs are underwater.

When resources are few, give priority to hires who can make a difference right away. I first handled the HR and accounting duties myself with a small team. Instead, we devote every available resource on engineering, sales, and customer support, the vital flywheels that drive revenue generation and expansion.

4. Rally your team with adversity and transparency.

Secrets and cliches are not appropriate at this time. Tell your team where the company stands; they are aware of the news and the state of the market. My understanding of the criteria required to advance to AppDynamics' upcoming investment round was unmistakable. For our Series B to be approved, we required 20–25 new clients. Everyone felt a feeling of urgency and had a clear objective after learning that. This wasn't some fictitious objective. There was a deadline that was drawing near.

Continual communication is also essential. When your runway is months rather than years, a week is too long to wait for updates. At AppDynamics, daily all-hands sync-ups addressed customer touchpoints, technological concerns, and product challenges. We reached a $11 million Series B because everyone on the team was committed to customer traction, driven, and united.

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