How startups can stay afloat in tough times when there is less liquidity?
According to data from the Association for Private Capital Investment in Latin America (LAVCA), venture capital investment in Latin America fell to 7.8 billion dollars in 2022, far from the amount registered in 2021, which amounted to 15.9 billion. millions of dollars.
2023 could be a difficult year for some startups as a reduction in the new rounds of capital raising is expected as well as a high interbank interest rate. However, some say that the people who start today will found the unicorns of the future. In fact, there are clear examples: Facebook in 2004, Airbnb in 2008 and more recently Incode, which was founded in 2015 and consolidated during the pandemic. In their cases, these crises allowed them to become stronger. And while there may be less investment in the region this year, in the longer term, there is clearly growing interest in Latin America. In the case of Mexico, so far this year, there have been 46 nearshoring investment announcements, amounting to 13.43 billion dollars, a new record.
Tips for startups to be more effective in times of less liquidity
Within the current context, what are some steps that startups can they take to be more effective as they seek to not only survive, but position themselves for future growth? In our more than 12 years of experience and joint work with startups, we have seen that the most successful ones tend to carry out these five actions:
1. Simplicity and completeness
In times of less capital, as a founder, nothing could be more important than identifying the strengths of your business and maximizing its potential, while streamlining anything that could be a distraction from your primary goal. That’s why a core principle of Stripe has been to seek simplicity in everything we do. This will make better use of the talent of their businesses and their resources, something extremely important, since investors focus on the rate at which startups use your money, also known as burn rateto inform your investment decisions.
2. Understand your customers better
The more data about your customers, the better. With data you can begin to have a clearer vision of your customers’ preferences and how to adjust your products to their needs. This information could be directed to the implementation of small changes that make the business more profitable. In Mexico, for example, it has been important to understand that the option to pay with months without interest has greatly influenced the decisions of digital buyers.
3. Reposition yourself around ROI
Some startups They are mistaken in thinking that the main goal is to maintain their profits, despite inflation, without thinking about how this type of decision can increase prices and therefore affect customers. Customers today are also looking for goods and services that offer significant value at a reasonable price. Forgetting that could be a serious mistake. When possible, it is best to renegotiate costs to maintain a viable product that is appropriate for the customers’ budget.
4. Turn occasional customers into repeat customers
In addition to focusing on producing high-quality products, many companies are looking to expand their product offerings based on the needs of their customers or are looking to make their products a must-have. Although having consistent sales is not unpleasant at all, getting repeat customers who can recommend a product to other people and keep buying is the best scenario. For some startups, this means moving from a traditional sales model to one of subscriptions.
5. Find new ways to reach key audiences
Since a startup has achieved the elusive product market fit, the new challenge will be to reach new audiences that are located in other cities or other platforms. Today it is more and more necessary for startups to have a strong online presence that not only showcases their products to thousands of potential customers, but also allows them to keep in touch with their current customers. Once you have an online presence it is important to know how to monetize it so that your efforts are profitable.
Although the challenge is enormous, it must be taken into account that the underlying factors that make Latin America a promising region have not changed: there is a very young population, many people are connected to the Internet through their cell phones and, above all, there are real problems worth solving.