When markets are challenging, as 2023 has been, entrepreneurs are put to the test, forced to prioritize in order to stretch runway in pursuit of the next key milestone. It’s daunting, especially for first-time founders, so we turned to several people who have ridden these waves, asking them to share advice and insights. First up: Wes Nichols, a Baltimore native, 2X entrepreneur and partner of L.A.-based March Capital. His down-cycle story was dramatic.
“As an investor, I always look for founders who have had these ‘near death’ experiences. It makes for a company culture that is respectful of capital and smart with how they spend the money. If you’ve never had that, you just won’t ever understand until you do.” ~ Wes Nichols
Do you have an experience in a down market as a founder that you can share with emerging founders? What lessons did you learn?
Yes, unfortunately/fortunately I have lived through several big down markets. Indeed, with MarketShare, my last company, we were supposed to close our first big financing on the day the Global Finance Crisis hit in September 2008. That obviously didn’t happen, and we raised 15% of what we had planned at a 60% lower valuation; but we did what we had to do to survive.
As an investor at March Capital now, I always look for founders who have had these ‘near death’ experiences. It makes for a company culture that is respectful of capital and smart with how they spend the money. If you’ve never had that, you just won’t ever understand until you do.
What is the biggest piece of advice you want to share with founders going through a down cycle for the first time?
The reality is not everyone is cut out for entrepreneurship. It is a very lonely, exhilarating, emotional, stressful and uncertain roller coaster path – it is not a career path but a life choice. I have built two companies from the ground up as well as created a rollup of companies within a multinational corporation, and I’m convinced most startups fail because the founders aren’t willing or able to adapt and modify the direction of the company frequently based on careful listening to the market. The notion of a startup is pretty insane if you think about it – launching a product/service no one thought they needed or wanted to pay money for, and then needing relentless convincing it is worth the prospective customers’ time and money.
A few other takeaways – you cannot underestimate the importance of transparency and fiscal discipline. Transparency and integrity with your team, investors, clients, vendors and partners is critical. Without trust, you have nothing as the market is already predisposed not to want to buy something new.
Fiscal discipline is critical too – wait as long as you can to raise outside money – bootstrapping is key. The more proof of concept you have, the less equity you need to give up. Just watch Shark Tank to see this at work – a company with little or no revenue is going to get ‘owned’ by the investors. Have some proof of life, and you have a line of investors. Simple market economics and risk management.
Once you are operating, ‘treat every nickel like a manhole cover’ – be cheap, careful with your money, and be smart. The days of unlimited capital are over.
When money is tight, what should founders prioritize?
The balancing act for software companies – my focus and experience – is in sustaining good enough growth (at least 40-80%/year) while not burning too much money to get that growth. Very, very hard to do. It starts with having a great vision and then turning that into a product that delivers – and adapting that on the fly as you listen to the market (your first product vision will never be what you wind up deploying ultimately if you are listening well). This means having a solution that delivers proper ‘time to value’ – how fast after a client signs up do they start seeing the benefits of your product? The faster the better. This then will fuel growth, revenue growth and ultimately profitability. All the while, building and defining a culture that will outlast you as a founder.
Tactically, we found subleases that were very cheap. We shared desks, used home computers, borrowed corporate rates for hotels from friends, etc. – whatever it took to be thrifty. Treat every penny like it is coming out of your pocket – because it is. Either directly or in the form of equity dilution. Make it count.
Any favorite courses, books, blogs, podcasts, or other resources you’d point founders to?
I happen to love the podcasts Pivot and All In as they give helpful perspectives. I’ve done the Jim Stengel and Paleo Ad Tech podcasts this year and those can provide a deep dive into the entrepreneurial mindset. Check out my blog posts on my Linkedin profile and on March Capital’s website for more articles that may be helpful.
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