https://medium.com/entree-capital/a-letter-to-startup-ceos-the-year-ahead-2023-344f2c10e4f9
DALL-E 2 “What lies ahead with woman and man”
“There is a crack in everything. That’s how the light gets in” — Leonard Cohen, Singer & Poet
🤷🏼♂️ What do we mean?
2022 was tough for startups. Suddenly money became hard to source and reality set in that the typical 18–24 month run before raising another round was not going to work. As a responsible CEO, you should have made deep cuts in overheads, reconfigured for much slower growth (if at all), and prepared to run a lean and efficient business with cash resources to last through 2023.
If you did not do all these things, then it’s probably too late — you will need to make some tough calls now and through the next year and unfortunately you are going to constantly find yourself on the back foot.
You don’t live in the “Startupverse”. Everything external affects your company. The macroeconomic climate globally affects business directly and this next year we will be in a difficult recession. The largest companies (Fortune 500 and non-tech) are cutting back and reconfiguring budgets for lower spend — this is the bulk of the global economy. Projects are being put on hold and nice-to-have solutions shelved; this affects your revenue line directly.
Layoffs affect your per-seat license-based revenue or usage-based revenue. You may sell to the IT organization and think you are shielded. Well, no difference here either, as they have less staff, so no new projects and staff being made redundant means that some systems are retired. You may sell to consumers — their real wages adjusted for inflation are reduced, and a portion of them (probably more so your target market) are out of jobs.
You can do more with less. Our research has clearly shown that startups are over staffed. Productivity has been a major challenge for at least 4 years fueled by cheap money and misconceived ideas of ‘growth at all costs’. We have seen 2, sometimes 3 people doing the same amount of work as 1 person did before. This needs to revert back to where we once were, as growth at all costs is by its very definition, uneconomic.
❓So where to from here?
💵 Build a plan that allows your cash to last at least 18–24 months from 1-Jan-2023. Your largest expense is labor. So figure out what’s actually necessary. Tough decisions need to be made, but you’ll be surprised at how, if handled right, your team will step up. Keep only critical and exceptional who are dedicated.
📈 Expect net growth to be 20%-30% from the prior year accounting for churn, downgrades etc. (If you just started selling then you really should be aiming for much higher).
📊 We’ve written before about some KPI’s (here) which should, in conjunction with the above, help you navigate the metrics VCs are looking for.
🎯 Focus on key markets. Focus on retaining your customers. New products and features, new territories, etc. that don’t have a clear ROI (i.e. contracts already signed for them) should be parked.
🤝 Always Be Closing (ABC). Founders are their companies’ best salespeople and also the first to stop selling, handing it over to others — go out and get the revenues.
🍕 Cut the waste. Pizza and beer are just fine once a month. Cold brew on tap, free breakfast, massages, fancy offices, and monthly parties are unnecessary. Rather, believe in the purity of the work.