R&D gets better with a crisis
Stress tests from inflation, devaluation, resource constraints
Entrepreneurs and investors are learning how to craft stress tests at a time when multiple macroeconomic factors make it difficult to predict how any of the factors influence their immediate plans. Although this is an imperfect time to experiment; founders and their teams - and their customers - shouldn’t waste it.
For example, the US inflation rate was measured at 8.3 percent for April 2022; according to Statista.
Monthly 12-month inflation rate in the United States from April 2021 to April 2022
Early stage entrepreneurs can choose to absorb eight percent inflation by adjusting their costs but not their revenue [pricing] forecasts. Or, do you really want to pass on an eight percent price increase on a product that’s still trying to achieve product-market-fit? If you were a founder in my portfolio the answer is a clear “not yet”. Obviously there’s a limit to how long absorbing costs can outrun available capital available; and there’s likely to be dilution to raising capital right now, which adds to those absorbed costs.
I’m also not endorsing lowering prices to appeal to customers you’re trying to acquire; who are also feeling eight percent inflation. The public markets are devaluing everything but bonds at the moment; your product shouldn’t follow this trend. Instead give your customers more value for the steady price they’re paying. Give them access to your team’s product development activities. Negotiate for similar access to your customer’s environment and mentor them on operationalizing your product. And while you’re in a customer’s environment learn how to create more value for them and other customers in the same segment.
I’m also hearing from entrepreneurs about their recruiting challenges; either to hire or to retain talent right now when compensation is dynamic [how much is that crypto equity really worth next week; forget about at the cliff?]. Founders can experiment with universities and career transition schools to employ short term employees. It’s more important to solve the staffing problem right in front of you than try to hire core staff. It takes a short phone call or email to a placement counselor at any of these schools; to get connected with their second year students who need and want industry experience.
Undergraduates enrolled in 2020
Meanwhile, founders also need to be smart about resources per employee. All the major cloud vendors are hungry to signup companies for their early stage programs. These programs often end with a nasty transition to steep monthly prices. Negotiate for an extension of the program. Or limit licenses for cloud services to a few that are actually needed to get tasks completed; to stay within basic price plans.
Keep experimenting; don’t lose focus on the business you’re building and the value brought to the market you’re entering. Reach out if you need help.