💬 In this issue:

  • Doubling down on revenue drivers: Leveraging early feedback for product iteration. 
  • Startup growth calculator: Crunch the right numbers.
  • Spotlight on Paul Graham: Improving the survival chances for your startup.

This week, one of the biggest global accelerators held a graduation for its latest cohort and reiterated what seemed like a super obvious point: stay alive! It was the same advice many VCs gave their portfolio companies in 2023 as the global tech ecosystem began facing the realities of a funding downturn and the shuttering of some of the best-funded startups.

Per Paul Graham, Default Alive (or Dead) measures whether a startup lives or dies if its expenses remain constant and the revenue growth over the last few months remains the same. 

Basically, will you reach profitability before you run out of money if all your current metrics remain the same? It’s an important question, and unfortunately, many founders don’t ask themselves until they run out of money and aren’t able to raise funding. By that time, they’re Default Dead. 

“It’s more important than ever to understand if you’re Default Alive or Default Dead. Because when the stakes are high, the slightest shift in one vital metric or another could ultimately mean the difference between life or death for your startup.”

Thankfully, there are some tried and trusted ways to improve the chances of survival for your startup and make sure you’re default alive. - Olumuyiwa (Writer & Contributor, African Pre-seed Podcast).  

💸 Figure out a revenue driver from the jump

Let’s face it: not everyone will build the next OpenAI, a company that was able to raise money and undertook research for years before releasing its first commercially successful product. Most startups will benefit from approaching things in more orthodox ways. 

While many VCs will back you pre-revenue, it’s a great idea to think about a product that can generate revenue from day one. 

Additionally, having a customer or client-facing product that generates revenue from the jump will give startups and founders the necessary experience in sales and marketing and offer the kind of early feedback that’s necessary for either tweaking the product or doubling down. 

It’s also critical to remember not to overthink a product. The aphorism that “done is better than perfect” is key here. For example, a Nigerian fintech startup that got into digital banking pretty early still didn’t win significant market share because it took too long to put its product in front of customers. People involved in the product said the company was focused on having a perfect product.

Spoiler: no product is perfect, no matter how long you spend on it. That’s your cue to ship your product! 

📉 Keeping costs low is one of those cliches no one really listens to 

Remember that one of the key metrics in calculating your Default Alive state is “How long can you cover your expenses?” While early-stage startups begin trying to do more with less, raising a seed round or a family and friends round typically means there’s a little more money to do more.

One of the biggest temptations is to overhire or spend massive amounts of the new financing on marketing. It’s not unusual for startups to hire pricey PR agencies, have law firms on retainer or even bring in some superstar hires. There are also expensive technology costs like cloud fees that can climb quickly without monitoring. 

There are lots of resources available on keeping costs low, keep your costs manageable, under control and predictable every month. 

Growth is critical 

One of the things that distinguishes a startup from other businesses is hypergrowth. Startups are expected to grow quickly. For many people, this looks like growing revenue by 20-25% every month. 

Growth is generally a metric that measures if your product resonates with customers and if they’re willing to consistently pay for it. It will also help you, in some part, help you in your journey towards product market fit. 

📚 What I’ve been reading:

Default Alive or Default Dead, a fantastic essay by Paul Graham 

The startup growth calculator to help crunch the numbers

How this startup founder ended up $97k in debt 

💥  Parting shot

What's on your mind? Drop us a note via connect@africanpreseed.com to let us know. Or, tag us on socials using #africanpreseedpodcast, #APSnewsletter or #APSVibeCheck.

That's it for now. See you next month! 😉