The Best of Business School 101: Lessons Entrepreneurs Need in Today’s Real World
Originally posted on Forbes.com
These are extraordinary times for entrepreneurs. While it is never easy to start and scale a company, the pace of the challenges of the last two-plus years feels relentless. Seemingly hypothetical scenarios from business school case studies are hammering real-world startups from coast to coast.
A global pandemic. Supply chain disruption and talent wars. Inflation and the rising cost of capital. Culture shifts and geopolitical disruption. Today’s choppy economic and social waters are test by fire for young companies and even for established corporations. If ever there was a time to put business school “what ifs” into action, that time is now.
Dollars, dimes, and due diligence
The demand for goods and services that was tamped down by the pandemic has exploded, driving up the cost of everything from haircuts, to housing, from steel to silicon chips. Shipping and transportation prices are impacting virtually industry. The domestic inflation rate topped 8 percent in the first quarter. The effect has reached venture capital.
Even though 2021 was a record year for venture investment, with venture funding nearly doubling from 2020 to 2021 and a reported 607 active unicorns in the U.S. (with 75 of those debuting since the first of the year), the winds have shifted. Global venture capital is still up year-over-year, however, first-quarter VC funding fell 13 percent from the fourth quarter of 2021.
It is time for entrepreneurs to recalibrate. Investors aren’t turning away from our asset class. It will take longer than it has to close rounds. Uncertainty in virtually every market makes investors nervous. Expect VCs to demand deeper due diligence at every stage. Previously “committed” investors might change their minds. Certain LLCs may move to the sidelines for a while. Crossover investors, such as hedge funds, may redirect toward stock “bargains.” Don’t expect a foam of IPOs in a market like this.
It is more important than ever for young companies to preserve cash. Return to the basics. Hold fixed costs to an absolute minimum and treat variable costs like you are spending your own money, which you are. Delay capital purchases. Lease instead of buy. Renegotiate fees and terms with providers. The proliferation of Zoom over travel plus the shift to remote or hybrid work environments–a recent PwC study reports that nearly three-quarters of companies surveyed offer hybrid work schedules–are ideal tools for young companies to manage fixed and variable costs–in this economic environment, setting the base of financially sound practices that will serve the company for years.
Talent is a startup’s most crucial asset
We are coaching our portfolio companies that it is more important than ever to build out and execute their talent strategies earlier in the current competitive talent environment. Whether customers are happy or not, whether industry sectors are boom or bust, or whether the market for talent is tipped toward the employer or employee, people are always a startup’s secret sauce.
A decade of workplace change has been compressed into a matter of months. Young companies don’t have decades of business practices to rework. Founders and startup hiring managers have a generational opportunity to develop new ideas that take clever advantage of the many ways that organizations and management practices have changed. They can start from the default of remote-first or hybrid work. They can look at the entire world as their source of talent. Geographic disadvantages (and advantages) are going away. Instead of overcoming cost-of-living or a shortage of engineers, startups can focus on building cultures that support cohesive and connected teams no matter where the employees work.
Generation Z is a talent powerhouse. Thanks to the recession and pandemic, these self-sufficient digital names are realistic and value financial security. Invest in technology to support online collaboration. Multiply the impact with a cadence of strategic in-person meetings. Generation Z is the most racially diverse generation yet. Aggressively recruit in underserved communities. Use internships to draw Gen Z into your talent pipeline while still in school. While making inroads with Gen Z, don’t ignore other cohorts. Scout non-traditional sources for talent–organizations that train people for a new field. In Columbus, we have a coding boot camp, Color Coded Labs, which finds, trains, and sets people of color up at companies ready to innovate at a grander scale.
Putting business school hypotheticals into action
There is no way to learn about how inherently risky entrepreneurial businesses are until you become an entrepreneur. No matter how ideally a solution solves a big problem for a customer, market validation will call for pivots. Startups seldom complete product development ahead of plan in the most successful prototypes. It always takes longer to close a deal than any founder expects. Some can manage some risks; others are beyond our control. Savvy entrepreneurs anticipate and plan for both.