Better Interest Rates Don’t Mean Entrepreneurs Can Relax
By Steve MacDonald
The Federal Reserve has loudly signaled it will cut interest rates, probably repeatedly, the last four months of 2024. Finally! After the pandemic and years of crippling policies that saddled startups with expensive money, an ice-cold venture-capital market, and few exit options, things may ease up.
But just because the Fed is easing up, it doesn’t mean entrepreneurs should. Sure, for startups in areas such as real estate and DeFi, lower rates should rev up deal flow. Get in there and start making money.
For everyone else? Not so much. This isn’t going to be a re-run of the free-money decade after the Great Financial Collapse. Back then, the Fed kept rates so low that investors poured money into venture capital, seeking practically any deal with a better return than zero.
That made finding startup funding pretty easy. With investors practically throwing money at them, though, entrepreneurs got lazy. Running out of cash? Do another round, at a higher valuation! Not sure what your business is? No big deal! We have time to figure it out and pivot.
No surprise, many entrepreneurs developed bad habits.They never learned the fundamentals of the business they were trying to build. They never learned to be careful with their cash, or to build the metrics that lead to good decisions.
The last few years changed all that. First, the pandemic transformed work habits, business operations, and consumer expectations. Then investor capital got expensive, and mostly went away.
Now, the Fed says it’s going to get a bit better, soon. So what? Whatever the Fed does in the next few months won’t impact most entrepreneurs in any notable way over the short run.
Let’s be honest, for privately held startups, most of the stuff you see on CNBC and Fox Business, on social media, and in the business press is just noise, not news. It’s not going to radically change the parameters of your business. You should operate accordingly.
When you’re an early-stage company, you need to ignore the noise.
Get back to work, building a company that can thrive for years to come. Regardless of Fed interest-rate decisions, we’re not going back to the easy-money era. Nor should we want to.
The pandemic transformed consumer habits and business operations. Smart entrepreneurs adapted. They cleaned up the lazy habits of the easy-money era. They conserved cash, cut out “nice-to-haves,” and focused on the fundamentals.
This group of entrepreneurs spent the past few years focused on discipline, the right metrics and KPIs. They’ve been head down, tracking the fundamentals like cash flow, burn, and sales.
Don’t stop.
In fact, now is the time where disciplined, focused entrepreneurs can really shine. Get your people in the same room (#WFH is not a great idea for startups). Make sure everyone’s truly collaborating, adapting on the fly, moving in the same direction. Make sure your assets are in place, and look at the opportunities around you.
And then, take action: Now is the time to go big. Push for the win. Do what you need to do to level up. Lots of competitors weren’t like you. They weren’t as smart and disciplined, and don’t have the processes and resources in place to succeed. Find your opportunities to take that big swing.
Remember all the hard lessons you learned operating your business over the past few difficult years. Keep doing them, no matter what the Fed does. Don’t ease up. Bear down. And swing big.
