Decomposing Venture: Build Through a Recession
Investor Liaison Hannah Savage discusses Marines, planning and resilience.
Pause Porter’s
This week, we pause from our analysis of the venture capital industry using Porter's 5 Forces (e.g., Force One, Force Two, Force Three) to focus on remaining calm during these turbulent times and planning for the future.
Recent economic headlines consistently report tightening budgets, cautious consumer spending and whispers – or outright shouts – of recession. It's natural to allow the media to dictate our reactions, pushing us into a defensive posture, or worse, outright panic. Now is the time to take a deep breath, analyze the situation and develop a strategic plan.
Do Plan, Don’t React
Two common strategies are emerging in the venture landscape: building for the recession – hoarding capital, focusing solely on survival – or building around it – seeking niche markets perceived as recession-proof, delaying ambitious growth plans.
While prudence is essential, it may be said these approaches, while seemingly safe, risk missing a crucial opportunity. The most significant returns aren't generated by those who merely weather the storm, but by those who build through it, emerging stronger and better positioned.
Neither For, Nor Around
Building for or around any challenge, not just a recession, demands significant resources, leaving us depleted precisely when recovery arrives and we need full momentum to seize emerging opportunities.
Think of it this way: a recession isn't a wall to be avoided, suggesting the recession is an impenetrable barrier, rather than a temporary challenge. Imagine instead: a turbulent river to navigate, representing a dynamic, challenging, yet ultimately navigable situation. Building for the recession is like building a bunker on the riverbank – a seemingly safe strategy focused on survival, prioritizing defense and minimizing risk. While it may provide short-term security, it isolates and limits the ability to capitalize on fertile land that may lie ahead for those able to bravely and courageously advance. Another tactic is to build around the recession, like digging a canal – a seemingly clever and smart detour perhaps, yet again potentially limiting and resulting in lost opportunity for those unable to access the main currents of future growth.
Build Through
Building through the recession, however, is like constructing a resilient vessel. This represents a proactive, adaptable approach. It implies building in a way that can withstand the challenges of a recession while remaining agile and positioned for future growth. It signifies a focus on strength, flexibility and the ability to navigate difficult conditions. It requires careful resource management, strategic navigation and a keen understanding of the currents.
This means optimizing spending, prioritizing essential investments and ensuring sufficient runway. This means neither wasting nor retreating, by ensuring adequate funds are available and used efficiently. This allows us to stay in the flow, adapt to the changing landscape and ultimately reach the most promising destinations when the economic climate improves. It requires a clear understanding of the company's core mission, vision and values. This means maintaining momentum and avoiding stagnation. It involves continuing to innovate, build relationships and engage with others. This is the opposite of the isolated bunker by the river. It’s staying in the middle of the river and riding the rapids forward to better times and places. Those who have built resilient vessels will be well-positioned to capture market share and achieve significant growth.
Be Aware
Innovation Doesn't Stop: Recessions may force efficiency and creativity. Companies built now, under pressure, may be leaner, more resourceful and solving more pressing problems. These may become the future market leaders.
Talent Becomes Accessible: Economic downturns may lead to layoffs at larger, less agile companies, presenting a unique opportunity to attract top-tier talent who might not otherwise be available or have considered roles at smaller firms.
Valuations Reset: While painful in the short term, more rational and realistic valuations may create a healthier investment environment. Continuing to deploy capital strategically can yield significant returns when the market rebounds.
Competitive Landscape Shifts: Companies that pull back too drastically risk losing market share to those who keep building and innovating. Resilience during a downturn may create lasting competitive advantages and legacy wealth.
Marine Mentality
Marines are known for their ability to execute plans under pressure, adapt to changing circumstances, and maintain a focus on achieving their objectives. The analogy of "taking the hill" after the recession may be a fitting illustration. The period following an economic downturn often presents a surge of pent-up demand and renewed investment.
Those that have continued to advance and grow strategically through the recession – refining their product, strengthening their team and optimizing their operations – may be well poised like Marines to "take the hill", represented by the post-recession market. They won't be scrambling like others that have simply tried to survive the recession and need to rebuild their businesses and even risk getting left behind entirely. They will have already laid the groundwork, established their position and possess the momentum to swiftly capture market share. Their "resilient vessel" will be ready to navigate the open waters with speed and efficiency.
Be Resilient
Focus on Core Value Proposition: Now is the time to double down on solving real customer pain points with truly differentiated solutions.
Prioritize Sustainable Growth: While hyper-growth might be tempting in boom times, focus on a scalable and sustainable model with healthy unit economics.
Cultivate a Resilient Team: Invest in people by fostering a candid and loyal culture. Be clear about the challenges and optimistic about the opportunities.
Maintain a Strategic Reserve: While not hoarding, ensure you have enough runway to navigate potential headwinds and seize strategic opportunities.
Stay Agile and Adaptable: The economic "rapids" may shift quickly. Be ready to iterate on your strategy and adjust effectively to new information.
Be Skillful
A recession is not a time to retreat. It's a time to be discerning, strategic and, above all, resilient by finding appropriate high ground. Plan to be in position to learn and see the receding tide and assess when, where and how the tidal waves of growth may come surging back. Let's not just wait for the storm to hit. Let's arm ourselves and our teams to navigate the future skillfully, emerge stronger and be the ones leading the charge when the sun breaks through. Now is the time for personal and professional development together, not isolation, strengthening our bonds for future rewards.
The "hill" is ahead, and those building through these difficult days, neither accepting defeat nor retreating, may be best positioned to succeed.
PS: Stay tuned as the series about Porter's 5 Forces continues with Force Four: Threat of Substitutes (Bank Loans, Crowdfunding, etc.).
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