By Neil Patel

The current economic environment is difficult, or even insurmountable, for startups — at least that’s the prevailing narrative. While it’s true that tech founders face a tighter market and heightened scrutiny, I can’t help but see this time as an incredible opportunity for determined founders to stand out from the pack.

I’m bullish on entrepreneurs looking to drive innovation in technology and have a front seat to the creation of health care startups in my role at Redesign Health. History shows us a precedent, too: Companies like Microsoft, Airbnb and Slack all emerged victorious from the crucible of adverse market conditions.

We’re poised to see a groundswell of innovation in this downturn, but that requires a willingness to act differently than in the past.

Here are a few opportunities we’ve shared with our founders that may be helpful for others looking to seize this moment and lead the way in uncertain times.

Building strategically with a broader base of industry experts

Strategic partnerships with established players can surface early signals on product-market fit, particularly through pilot programs. This type of collaboration can complement venture capital relationships, while unlocking pools of capital that aren’t as well known as traditional VC funding.

These partnerships also provide proof points and references tech founders can use to help mitigate other prospective customers’ apprehensions about working with an early-stage startup.

Health care, for example, is ripe with opportunities to partner with market leaders such as regional health systems or integrated delivery networks. Experts from these organizations acutely understand systemic gaps to help focus your minimal viable product roadmap and can provide clinical guidance during product development.

They also offer a real-world testing environment for your solutions, enabling you to iterate and refine your product based on real user feedback, ultimately increasing your odds of gaining market traction.

For example, Redesign Health operates a unique model focused on 0-1 company creation in health care. When we built a women’s health startup, we joined forces with March of Dimes, an industry leader with particularly deep experience in serving women around pregnancy-related issues. March of Dimes has been an invaluable partner, providing market insights and advising on product development, as well as selecting the women’s health startup to receive the first investment from its Innovation Fund.

RIP blitz scaling. Long live accountability

Today’s market demands increased capital efficiency and traction, making execution matter more than ever. To win in this era, tech founders need a laser focus on their customer, extreme operational rigor, and burn that matches their traction.

• Blitz scaling is no longer viable. Founders must slow their burn — a good thing — and align spend to performance, adopting a Main Street mentality of living within their means.
• Prioritize focused experimentation. Founders can’t afford to try dozens of things at once. This approach leads to high fragmentation, fast burn and a lack of meaningful results. Stay lean until you see what resonates.
• Lead with economic arguments. Assume your customers are reining in their spend and betting on proven solutions. Demonstrate how your work generates revenue or saves money for your partner.
• Be accountable. Measure everything you can and communicate results or delays proactively, even on the smallest pilots, to your customers, investors and team. Fostering a culture of transparency and shared responsibility is always important, but especially critical in adverse market conditions.

Finally, tech founders need to clearly articulate value chains and validate product-market fit. That starts with a solid understanding of fundamentals: the problem, the solution and who pays for that solution.

This is an insight all industries should take away from the health care sector, where understanding these core fundamentals is the only way to build sustainable businesses that meet the needs of patients and partners.

Output must now be valued more than credentials

Disposition matters more than pedigree, especially for nontechnical hires. This has proven true in our experience hiring more than 40 CEOs and 100-plus founding team members for startups we’ve helped to build.

The best founding team members aren’t typically specialists, but instead “general athletes.” They share traits and soft skills that far outweigh domain expertise, seniority or tenure at a prestigious company, including:

• Resilience: We look for the ability to persevere, maintain composure, learn from failure and bounce back from adversity.  For instance, a CEO we backed when I was managing a venture fund provides a remarkable example. While still in business school, he and his friends persevered through challenges of scalability, concentrated geographic traction and limited revenue opportunity with their initial product. Eventually, however, they transformed their company from a single product into a massive company serving every national health plan and thousands of providers across the health care continuum.
• Adaptability: Strong hires are highly adaptable — able to operate in uncertainty, pivot their approaches, and tackle emerging challenges and opportunities.
• Decisiveness: Effective leaders make quick, confident decisions, remaining open to feedback and changing course when needed. As an example, Redesign funded a tech-enabled service organization to address customer pain points within a large but competitive market. Research in the space showed that 80% of customer interviews indicated dissatisfaction and a desire to switch vendors, which suggested a new competitor was needed. Given the organization’s deep experience as an operator, upon joining, the CEO built a case to focus the business model away from directly competing with existing players — opting to develop a true SaaS product with limited competition, higher margins and greater ability to scale.
• Emotional intelligence: These skills are crucial for building strong relationships and managing conflict with diverse stakeholders such as employees, investors, partners and customers.

Final thoughts

With startup funding down 51% in the first half of 2023 from the previous year, market conditions are drawing a bright line between two types of startup founders: Those who dig deep to build strong partnerships, execute impeccably and embrace ambiguity are poised to win where others falter. This is a defining moment for this generation of business leaders, and how we meet it will matter for years to come.

Neil Patel is the head of new ventures at Redesign Health. He has been an operator, consultant and early-stage investor in the health care industry for nearly 20 years. He was previously the head of partner strategy and solutions for the Amazon Web Services health care business. Before that, he led a successful turnaround and sale of Healthbox, an innovation services firm.

Illustration: Dom Guzman