When term sheets are tightening and VC's are closing ranks - what should you do?

The front pages of the newspapers tell us that the economy is on a precipice. Interest rates are rising, inflation is at a 40-year high, and many report that venture capital is pulling back.

This isn't the first time that a crisis hit the startup community, and it won’t be the last.

While on the one hand, I want  to tell founders not to panic, I am also not saying things are business as usual. 

The companies that thrive, will respond best to this moment in time. Those that hope that the status quo will see them through - well, best of luck.

Let's start with the big picture. In the UK there is a widely reported cost of living crisis, with big increases in inflation and increasing interest rates.  For early stage companies, this can cause two big problems.

Less time

Startups often fail because they run out of money. Increasing costs mean your capital dwindles faster — giving you less time to hit your break-even and growth ramp. 

Less money

Startups are risky. In recessions, they are even riskier. Your investors may choose to cut back on what they have promised to give you. It feels brutal, but it’s nothing personal.

So, what should you do?

Well, let me tell you our story. 

The original inspiration for Nylas, back in 2013, was that email was really hard for developers to work with. We believed we could make it easier.

We knew if we could extract the meaningful data from email and make it accessible to developers, that could be very valuable. 

Nylas originally launched as an email client. However, after some tough years we recognised that competing against big tech companies such as Google was going to be a tremendous uphill battle.

Furthermore, we started to see that customers were interested more in the APIs that were powering the email client, rather than the email client itself. We made the decision to pivot to a communications API platform as a means of both potential growth and present survival.

It took grit, honesty, our community, our customers and all our nous to get us to where we are today. But it was not easy. 

An important lesson we learned early on is to find and conserve cash, and make sure the business is growing sustainably. 

In truth, this moment in time forced us to focus. Focus on what worked — not on the products we had worked so hard to build.

This isn't a business management article, but it's worth knowing a few key numbers.

One of the most important terms in our industry  is 'churn' — how many of your customers this month are still customers next month. If you can't get customers to stick with you, all of your efforts to grow amount to nothing — it's like having a leaky bucket. 

We were able to get huge numbers of people to trial our mail client, but 80% of them would be gone one month later.

Then it's about your customer acquisition cost [how much sales and marketing money it takes to win a customer] vs your lifetime value [how much money on average a customer gives you over their time as a customer]. Our email client wasn’t converting into paying customers reliably — there was just too much free competition. 

But when we looked at our API business, we saw a different picture. People were sticking with us, spending money and growing over time.

Making the decision to stop developing our email client was incredibly tough. We had worked so hard to make the product and we loved it. 

But these three metrics tell the story. They can make it clear that you're pushing the right product in the right direction. When we looked at our products with this lens it really helped us focus on what was most important and start to grow in the right way.

Now we've grown pretty quickly, there are over 180,000 developers in over 40 countries using the Nylas API platform every day. 

The Nylas APIs enable organisations to connect with customers' email, calendars and contact books, along with AI--powered tools, low-code UX features, and much more.

Companies use Nylas to extract communications data, and turn that data into actionable insight that drives high-quality and personalised customer experiences.

Crucially, they do this faster — and as we’ve seen, speed matters if you want to survive and thrive as a startup.

One of the reasons I wanted to write this article is to tell our story and hopefully inspire someone else facing a painful moment in their startup cycle to look with clear eyes, dig deep and have the courage to go again.

At the top of the article, I said that the reason startups fail, in the end, is they run out of money. 

One initiative we created that gives founders alternative options to VC funding, is the Nylas Alumni Fund. This helps both current and former Nylas employees turned entrepreneurs propel their early stage start-ups forward. Through the fund, Nylas will contribute $20,000 towards a seed round of funding in order to help fuel the next wave of transformative startups and visionary entrepreneurs.

Additionally, startups that are in Accelerator Programmes can get access to special licences and white glove treatment to integrate our tools into their systems and get deferred payment terms — to help them get their ideas to market quickly, too.

It won’t make a bad idea succeed, but it might give the good ones a chance to thrive.

If the downturn the media promises us does come to pass, it might mean you have to rethink your business. This is where your mettle is tested. Dig deep. When we went through our crisis we emerged as a much better business. You can too.