Dealing with uncertainty is a huge part of being a startup leader and can be incredibly difficult. It’s been for me. If you are part of a fast-growing company, you deal with daily uncertainty. It’s already a huge part of our lives, and your journey at a startup is no different.
Repeated exposure to high levels of uncertainty can throw entrepreneurs on an emotional rollercoaster, potentially impacting their mental and physical health. Research has shown that uncertainty is constant in entrepreneurship, and as leaders changing the industry, our capacity to tolerate and handle it will significantly contribute to company success.
This year, company valuations dropped 80 to 90 per cent from their all-time high. Business leaders must manage risks and uncertainties, but risks can be managed with the right mindset and preparation. The silver lining is that, as startups, we get better at handling uncertainty and can come out on the other end stronger warriors.
Capital uncertainty
Uncertainty may create a “no-go” zone around the new market, which allows the startup to create for a while without competition. However, venture funding was down by 53 per cent in Q3, almost US$90 billion. Leaders must aggressively explore and negotiate with different investors, understanding that the conventional venture-backed model is not a one size fits all approach.
This year, leaders we spoke with responded to increased uncertainty by adapting the time and way they raise money and the focus on profitability. Startups frequently operate in a state of financial uncertainty, even if the economy is stable, because they have not solidified their business models. Pandemics are not common; businesses have always had to manage some degree of uncertainty, particularly startups.
Startups in these examples have taken different approaches to navigate uncertainty, with some focused on maintaining cash flow, some expanding to new markets, and others completely pivoting. Being undeniably fundable (or “default alive”) has been the default in this bearish environment, reducing customer acquisition cost, increasing gross margins, balancing burn multiples, etc.
Product uncertainty
Not reaching product-market fit is perhaps the biggest risk for early-stage companies starting companies at a higher risk. The market size for your product is (mostly) out of your control.
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Still, one of the biggest risk-avoidance risks I see teams taking is starting companies with potential markets that are too small to make them economically viable. Instead, business leaders should look into aggressive growth industries, such as Web3, so it gives them a sandbox to keep building.
If you understand where market risks come from, you will be better equipped as a team to make early decisions about whether or not you want to launch your startup in a given market category.
Vietnam’s e-commerce market grew 16 per cent last year from 2020 to US$13 billion, putting them in the top three Southeast Asian countries with the highest online retail sales growth. Startups that will flourish over the coming years will have an unrelenting product focus, both in terms of who they serve and how they serve them.
Customer uncertainty
Many startups learn late that their products have a small to no market. During times of uncertainty, closing the gap between customers’ expectations and your products or services reality can mean the difference between success and failure.
Companies can raise over US$100 million but still be exposed to overnight shutdowns. A core tenet of startups is to confirm the market’s needs before offering a customer-centric product or service to avoid having a business idea with no sustainable path.
Startups may discover new markets or create valuable new products through innovation. Still, if those new markets are ripe for disruption or a new product is likely to be copied by other companies, the chances for success are much lower.
Final thoughts
Entrepreneurs are at the greatest risk of being broken by the twists and turns of rapidly changing business environments. Because of that, it is only natural that one can become frustrated with the constant failures and complete setbacks that are inevitable parts of an early-stage startup’s journey.
You should not let that translate into irrational behaviours, as investing time and energy intelligently during your initial startup phase is essential to your startup’s success.
Celebrate risk, celebrate uncertainty, and move forward.
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