How are tech startups going to fair out in 2023? What will revenue look like? It is difficult to make a definitive statement about the state of the current economic climate. Ultimately, the success of venture funded businesses in 2023 will depend on their ability to be more strategic, agile and adaptable than ever before to changing market conditions.
Overall, technology companies performed well during the COVID-19 pandemic, which accelerated adoption of digital technologies and created new opportunities for tech companies. Despite the economic uncertainty caused by the pandemic, venture capital firms and other investors continued to invest heavily in many sectors.
In fact, according to Invest Ottawa, Ottawa-based companies raised a total of $2.4 billion in funding in 2020, up from $2.2 billion in 2019. But what about now? The current funding environment is more competitive than ever, and founders need to be prepared to demonstrate a clear path to revenue growth and profitability in order to attract investor interest.
As a founder, maximizing capital efficiency is crucial for the success of your business.
Capital efficiency is the ability to generate more revenue and growth with less investment, which helps you preserve capital, increase profitability, and achieve a higher return on investment. In this article, we’ll explore some strategies you can use to maximize capital efficiency.
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Have a clear vision and ruthless focus
It may sound obvious but under financial duress it is easy to lose a clear line of sight on your chosen vision and certainly common to lose focus on achieving it. When you have a well-defined vision, you can make better decisions about where to allocate your resources and which opportunities to pursue. You can also avoid wasting time and money on activities that don’t contribute to your core objectives. Stay focused is a daily practice.
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Truly commit to being capital efficient
If you aren’t totally committed to being capital efficient you are not likely to make the right necessary spending cuts that may be required to reach and sustain positive cashflow. When business owners fail to make these critical financial decisions in a timely fashion it can quickly cascade to a number of negative consequences including damaging the business’s credit rating, increased debt, reduced profitability and competitiveness and increased risk of default or bankruptcy. Don’t let your fear paralyze you – stay committed.
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Level up your forecasting capabilities
If you are running a tech company, you absolutely need to be forecasting cash flow. It is surprising how many founders are not maintaining reliable rolling financial forecasts. One reason is that it can actually be quite challenging for scaling SaaS companies (who often invoice customers using a variety of cadences) to forecast projected billings from current and anticipated customers but it is imperative to get the right expertise to help you develop a reliable way of predicting future cash flow. How will you know your cash runway without this?
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Keep your expenses under tight control
Controlling spend is an important factor to maximizing capital efficiency. To keep your expenses under control you need to have a clear understanding of your cash flow and make spending decisions based on what’s essential for your business. Be aware of the bias towards spend inertia. Just because you made a spend decision a year or two ago doesn’t mean you have made a life commitment to it. Stay agile and get comfortable with ‘not right now’ decisions.
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Measure your performance
To maximize capital efficiency, you need to measure your performance regularly. You should track your key performance indicators (KPIs) and use them to evaluate your progress towards your goals. By monitoring your performance, you can identify areas where you need to improve and make adjustments to your strategy accordingly. And make sure you are measuring your KPIs properly. Consult an expert to be sure.
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Enlist a financial co-pilot
If you don’t have a CFO or strategic financial advisor who really knows your business model, you are definitely at a disadvantage. Hire an experienced factional CFO who can help you better understand your finances, and navigate through uncertainty as well as providing support during challenging times.
In conclusion, maximizing capital efficiency is essential for success but necessary during economic uncertainty. As a founder, you need to have a clear vision, control spend, maintain agility and stay committed to capital efficiency. By following these strategies you will get more done with less money, increase profitability and achieve a higher return on investment.
Susan Richards is co-founder and managing partner of numbercrunch, inc. Numbercrunch is FinOps for SaaS and tech-enabled startups and scaling businesses.
