Startups are notoriously short on resources, especially when they are rapidly scaling. Scaling friction takes more tolls than anticipated.
At these moments, startups become vulnerable to ecosystem changes: Not because they need to take immediate action, but because the perceived threat came as a surprise and your organization is frantically scrambling to understand your options and might rush into action prematurely.
It is a good exercise to think about your Total Addressable Market (TAM) and how either TAM or customer acquisition cost could change:
- One of your suppliers is getting acquired by your competitor. Because you both sell to the same customers, the acquirer will no longer provide you the service as you are now competitors.
- A competitor is getting bought by a large enterprise with existing other business lines. They will offer your service for free and use it as an on-ramp for upselling / cross-selling their other products and services.
- An enterprise in a tangential space is offering a “good enough” solution. While your solution will still be superior, your sales cycles might lengthen, or your own entry-level product is filling your top-of-funnel with far fewer sales prospects than anticipated.
- You provide such an inexpensive solution that you shrink your own market to 1/10th of its original size and are not able to add new customer segments where previously higher pricing was cost prohibitive to engage.
Think about strategic options:
- Do Nothing. Perhaps you come to the conclusion that specific events don’t need any response at all. You let them play out. They will have no effect on your market, no matter the noise or news they create.
- Offense. For some scenarios, you might want to take actions right away. These are offensive measures. You might want to create entry barriers for competitors. You could develop allies through partnerships to align common interests. You could try obfuscation to mislead competitors, but usually, that plan falls flat quickly and is confusing for your customers.
- Defense. For some scenarios, you might want to have a plan in your drawer for later, just in case. These are defensive measures that you start once the threat materializes.
Offensive and defensive measures will have an impact on capital and resource planning. I suggest you discuss these with your board. No one should be surprised by a seemingly sudden change in strategy or a higher cash burn than anticipated.
