The Changing Landscape of Startup Success in 2023: A Perfect Storm of Profitability
In the world of startups, 2023 marks a significant turning point. The strategies that once guided unicorn-valuation growth are evolving at an unprecedented pace. It’s a shift akin to the transformation the movie industry experienced with the rise of streaming services, and it’s altering the very fabric of how startups succeed.
In the not-so-distant past, launching a successful startup resembled the process of making a hit movie. It involved crafting a great script (akin to a groundbreaking startup idea), securing seed funding (the equivalent of getting the script greenlit), assembling a team of experienced talent (buzzworthy actors), attracting Series A funding (a deal with a major Hollywood producer), navigating the build stage (staying under budget), going to market in thousands of theaters (launching the product), and, depending on the results, either planning a sequel or considering other career options.
However, just as the film industry underwent a seismic shift with the advent of streaming, the startup ecosystem has witnessed several major events in recent years that have disrupted the traditional growth path.
Web3 Crimped Funding
A decade ago, the world of cryptocurrency was primarily the domain of tech enthusiasts and libertarians. While the concept of blockchain technology held promise, its execution was rife with uncertainties. Fast forward to 2022, and the cryptocurrency space had transformed into a whirlwind of speculation and volatility. Bitcoin’s meteoric rise in value attracted a flood of new investments, but it also drew the attention of bad actors who engaged in thefts, scams, and bankruptcies.
As the dominos continued to fall, both traditional and new venture capitalists found themselves grappling with the fallout. It’s not merely about the dwindling pool of venture capital; it’s also about the erosion of trust in emerging technologies and their potential.
The Pandemic Shuffled Talent
The global pandemic and its far-reaching effects forced many individuals to reassess their priorities. Two pivotal shifts emerged: a reluctance to continue pursuing careers that brought no fulfillment and a refusal to live and work in undesirable locations. Consequently, a newfound emphasis on remote work and collaboration spawned a plethora of platforms, tools, and protocols that facilitated distance collaboration.
While headlines have been dominated by terms like the “Great Resignation” and “Great Regret,” the enduring legacy of these changes lies in the tools and platforms that remain. Companies that have not addressed their own internal cultural issues are now being outperformed by startups and forward-thinking organizations. Furthermore, investors are recognizing that massive funding allocations are no longer essential to support extravagant downtown offices. Waste, whether deliberate or accidental, is no longer tolerated.
Inflation Brought a Return to Profitability
Amidst the backdrop of billions of dollars vanishing due to ill-fated web3 ventures and the mounting financial repercussions of pandemic responses, inflationary pressures loom large. As we brace ourselves for a historical inflationary wave, the clarion call for a return to profitability among investors is neither surprising nor untimely. While risk is an essential component of reward, the era of propping up personalities over financial sustainability is drawing to a close.
The Lasting Strategy
In the ever-evolving world of startups, trends come and go, from the garage-built computers of the 1980s to the dot-com boom of the 2000s to the NFT craze of the 2020s. However, one principle remains steadfast: the strategy of creating and selling something at a profit, then scaling sustainably.
In 2023, every startup, from my primary venture to my side projects and the VC-backed startups I advise, is unswervingly focused on EBITDA, profit, burn rates, and runway—just as we were in 2022.
While the startup landscape may be in a state of flux, the timeless pursuit of profitability remains a beacon guiding entrepreneurs through the changing tides of the business world. As we navigate these uncharted waters, one thing is certain: adaptability and a keen eye on the bottom line will continue to be the keys to success.
