By Said Ouissal, CEO and founder of Zededa
One of my favorite parables involves two guys camping in a forest who get awakened by the sound of a bear tearing up their campsite. One guy throws off his sleeping bag and yells, “Run for your life!” The other guy calmly rolls over and begins lacing up his shoes.
“What are you doing? That won’t save you from the bear!” the first guy screams. “I don’t have to be faster than the bear,” the second guy replies. “I only have to be faster than you.”
That’s a good way for my fellow edge computing startup founders to think about raising money over the past two years of economic and social chaos. This mindset helped us as we closed two funding rounds in 16 months, with the most recent round doubling the previous investment in the company. The downturn can be seen as an opportunity as much as a threat: the weak competitors in your market will get wiped out; you have to ensure you’re not one of them. Here are three ways to lace up your shoes and be faster than the next guy.
Stop focusing on growth only
During boom times, startups could get away with acting like they were more prominent and successful than they actually were. It seems logical that any healthy business shouldn’t be spending more money than they need, but the list of failed startups would be much shorter if that were the case.
That “growth at all costs” mindset is coming back to bite a lot of founders now. Growth metrics are terribly overrated: the amount of money raised, the number of people hired, and even the number of customers.
Founders don’t always want to admit it, but you can always buy growth. Give the product away for free, and your number of customers or users will skyrocket. It’s not hard to build up a massive number of users if you’re not concerned about revenue. But the purpose of a company isn’t to grow; it’s to make a profit. Focusing on profitability is a much surer path to success.
People tend to make bad decisions when they get hung up on vanity metrics like the number of subscribers or how fast the team is growing. Those metrics are based on input, but it’s much better to focus on output: Do I have customers? Do I have a product-market fit? Do I have the right team and all of these things right? Those answers illuminate the true path to profitability over growth.
Imagine a promising startup that gets a blank check to build the best product in its market. That sounds amazing, but the problem is, I’ve never seen that work. Sure, you get a well-funded company that can hire as many people as they want, but that takes away a key success factor: motivation. When there’s no pressure in your organization, people don’t have the desire to accomplish great things.
When resources are scarce, managers make better decisions. The implications and trade-offs of every decision are closely considered. Constraints lead to improved focus. This shows up starkly in the way you manage your talent. It was a difficult hiring market for a long time because everyone was hiring like mad and paying huge salaries. Now that the economy has shifted, it’s a good time to revisit who’s on your team today. Reorganizing or bringing in new talent could be the most effective way to meet your goals.
Flip the investor interview
When raising money, founders should interview investors in the same way they interview potential employees or customers. The approach might have been different a few years ago when the market went wild and firms were handing out funding rounds more easily. But at the heart of it, not every investor is a good match.
You want to look for someone who will be with you on your journey, with the same conviction you have for your business. A good rapport is critical: you want to ensure an undeniable culture fit and financial fit. Otherwise, you’ll get investors who feel they’ve overpaid for you, forcing you to focus on the wrong metrics again, kicking off a downward cycle.
Remember: flat Is the new up
One of our board members did a good job of putting the current situation in perspective recently. “Flat is the new up,” he told me, meaning that if companies are raising money now and getting a flat valuation, that’s actually a good thing.
It does present a bit of a double-whammy because if you raise money at a flat or lower valuation, all your previous investors get diluted a lot more. At the same time, you have to raise more than you usually would have because you’re growing, and it’s not always easy to scale back your cost structure.
That’s the situation many edge computing companies find themselves in, however. The world has changed, and we don’t know how long this change will be around. There’s always a silver lining, however. In prior recessions and downturns, some of the best companies around were built during those times. They weren’t faster than the bear but they were faster than the next guy.
About the author
Said Ouissal is CEO and founder of Zededa. Zededa offers an enterprise edge cloud-based service that delivers visibility, control, and protection for distributed edge gateways, applications, and networks.
DISCLAIMER: Guest posts are submitted content. The views expressed in this post are that of the author, and don’t necessarily reflect the views of Edge Industry Review (EdgeIR.com).
edge orchestration | funding | venture capital | virtualization | Zededa