With some large tech companies making cuts and restructuring given macroeconomic headwinds, scrappier and more agile startups with winning ideas have the opportunity to come to the forefront. However, securing funding is always challenging, and with venture investment activity slowing down, many startups are taking on debt to fill funding gaps.
Tech startups need to remember that every major industry experiences fluctuation, but technology is still central to our modern life and innovation will continue to be in demand. Although investors may be more cautious in who and what they invest in (and at what valuations), they are still investing—and looking for the next great idea that could change the world. Here are a few steps that startups can take to stand out among the crowd and make sure they come out on the other side of this crucial moment in the tech sector stronger than ever.
1. Become obsessed with the problem—not your solution
Entrepreneurs can sometimes become so obsessed with their solution to a problem (their product or service) that they lose objectivity on whether or not it’s best suited to in fact solve the actual problem. And this oversight can be a dire mistake for startups. Over 40% of startups fail because they do not properly identify and address the market need.
Entrepreneurs need to spend time obsessing over the ins and outs of the problem to be sure they come up with the best solution. It’s also important to remain focused on how to solve the problem to avoid project creep. Project creep is when an initiative strays away from its original goal.
Before approaching investors or venture capitalists, entrepreneurs need to be honest with themselves about how to address the problem they have identified—including asking themselves whether or not their solution is truly the best solution to that particular problem. Obsess yourself with the problem you’re trying to solve—not your solution.
2. Focus on the fundamentals: profitability and ROI
Now more than ever, entrepreneurs need to focus on the fundamentals by developing their revenue models in order to maximize efficiencies for growth, scale, and a positive return sooner rather than later—especially in a climate where only two in five startups are profitable.
At the end of the day, a promising return on investment (ROI) is the most concrete metric that can help startups secure funding. To make a convincing business case, entrepreneurs also need to clearly articulate their addressable market, value proposition, competitive advantage, and a strong customer acquisition strategy. Investors are looking for entrepreneurs that demonstrate a mastery of the fundamentals with a clear line of sight to profitability.
3. Know your “why” and make sure it’s compelling
Entrepreneurs also need to demonstrate passion for their solution by telling a clear and compelling story. The way that the pitch is presented is itself a strategy. It needs to be convincing and leave the audience of investors wanting to hear more. At its core, the story should answer the question: Why are you doing this? And the answer should be deeper than just “making money.” There has to be something that truly drives the team and its founders to overcome the odds and stand out among the crowd.
If only one startup in a million is funded, why should it be yours? Each entrepreneur’s story is different, but often it’s tied to a personal experience that compelled them to take action. It’s also the basis for the grit and resilience necessary to push through when the going gets tough. Hone in on your “why.”
4. Be a team builder rather than just a team leader
Entrepreneurs need to be more like team builders rather than team leaders in order to attract, retain, motivate, inspire, and develop a successful team that can execute on their shared vision. To this end, it’s critical for entrepreneurs to have the self-awareness to know what they know—as well as what they don’t know. Founders need to be objective about their strengths and weaknesses and build a team that fills in their gaps, rather than try to pretend that they can do everything on their own, which is a recipe for disaster. According to the Harvard Business Review, it’s these team-building soft skills that can make or break your startup’s success. Spend more time cultivating this skills set and thoughtfully build out your team.
There is no shortage of competition in the tech startup world. In the U.S. alone, almost 63,700 startups were active in 2021. Of these, 70% typically fail within 10 years. But these four steps can help you defy the odds, stand out among the crowd, and attract the necessary funding you need to ensure your startup is successful.
L. Felice Gorordo is the CEO of eMerge Americas.
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