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The hot topic in the business world right now is whether a dreaded downturn is imminent or not. The founders I’ve talked to are particularly worried about losing access to funding if things take a turn for the worse. Many are redrawing their more optimistic projections, which were made when it seemed like everyone was raising mega rounds on fantastical multiples.
While a recession is likely to mean money is harder to come by, money doesn’t just disappear. Remember that when inflation is as high as it is, anything sitting in the bank is losing value anyway. Investors that have raised funds need to make investments, and will still be looking for good companies to make a return on — only now they will be much more particular about who they invest in and the valuations will come down to a more realistic number.
The encouraging news? Companies like Slack, Square and Airbnb were all launched in recession, and this is a trend dating way further back. Even Microsoft was born during a fierce recession in the mid-1970 and investors know this.
What do all of these companies have in common? They all bring irreplaceable value to their customers. Technical alternatives might exist but the brand stories are so strong most people keep spending because the product fixes a true pain point in their lives. Here’s how you can show your irreplaceable value to investors.
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Play by the rules of your industry
Not every market is affected the same by a recession so the strategy you take should vary significantly depending on your positioning. Some industries have their irreplaceable value so embedded in consumers’ minds that they wouldn’t even think about closing their purse strings. Health, wellness and beauty are three industries that come to mind.
For other industries, it may be harder work — but luckily, recessions have a way of shining a light on people’s underlying issues. It can be a time when they are looking to make smarter choices with their money and their loyalty to your competitors is weakened. This is your chance to make potential customers excited about what you have to offer. Can you adapt your business model to make it easier for people to join your ecosystem? If you’re gaining customers during a recession, this is a strong positive signal to potential investors.
Consistency over raw sales
However, this isn’t about just having one good month and using those numbers on your slide deck forever. Investors aren’t likely to be fooled by any number trickery. Bringing in $10 million in revenue sounds impressive on its own, but if last year it was $50 million, then suddenly the overall picture isn’t the same.
Rather than focusing on one big push, aim for consistency and building a sustainable track record. A high customer retention rate will be more impressive to venture capitalists than a flood of new customers who may not stick around. If you want to impress potential investors, show them your customers love you because they keep coming back. It doesn’t matter what your business is, customers will only do this if you’ve achieved a strong product-market fit.
You should also encourage your customers to leave you reviews and engage with your social media accounts. It’s another data point that encourages investors to believe you are already on the right path and they just need to come along for the ride.
Related: What VCs Look for in a Startup Investment
If your numbers are showing that you have irreplaceable value then you should be shouting about it from the rooftops. You should be telling people across your social media, your website, your newsletter and any other options you have available.
Bad news always travels fast, so you have to put in the work so your good news wins the race. It’s quite easy for investors to form a negative opinion about your company based on outdated information. As they are so busy, this might stop them from even giving you a chance to pitch your company. Imagine if instead, your business name triggers them to recall seeing how high your customer retention rate was on Twitter. It could make all the difference.
Be willing to pivot
During difficult times, it’s critical someone from your team is paying close attention to the headlines. From there, you can see what pain points are receiving the most coverage. For example, during the pandemic, everyone was struggling with remote working and collaboration, so it would have been smart to see how you positioned your business to reduce that pain.
If your brand story was developed in times of plenty, it might not resonate with potential investors anymore. Spend the time recrafting your story and choosing which parts to emphasize so it’s relevant to the problems people are facing today. Pivoting your story isn’t a red flag if you can effectively articulate your new mission.
You can show through hardship, you realized why customers love you and leaned further into that as a way to show off your irreplaceable value. This story could be hard for investors to resist.