Jul 26, 2023 674

"Everything About How Startups Succeed Is Changing in 2023How three events created a perfect storm of profitability. "


There's a reason why a lot of the news articles and thought pieces you read about startup success all sound the same lately. It's because the threads binding the strategy of unicorn-valuation growth are unraveling at a quickening pace.

Tighten your belts, kids. The investor calls for a return to profitability are as unsurprising as they are late. Yes, risk needs fuel and air to become reward, and that will always be the case, but how many Adam Neumanns and SBFs did we need to prop up before we realized that cults of personality didn't pay salaries and rents?

It's That Last One That Matters Look, I realize I'm just scratching the surface and pointing to the obvious here, but there's a method to my lack of madness. Every shiny new startup trend -- from 1980s garage-built computers to 2000s dot-bombs to 2020s NFTs -- has a short shelf life and a false front. The only thing that doesn't change is the strategy of making and selling something for more than it costs to make, then scaling in a sustainable way.

In 2023, every startup I'm involved with -- from my day job to my side project to the several VC-backed startups I advise -- will be 100 percent focused on Ebitda, profit, burn, and runway. Just as we were in 2022.

As billions of dollars continue to be wiped out on bad web3 bets and billions more dollars in pandemic-response bills come due, well, it was only a matter of time before we faced an historical inflationary wave.

There's a reason why a lot of the news articles and thought pieces you read about startup success all sound the same lately. It's because the threads binding the strategy of unicorn-valuation growth are unraveling at a quickening pace.

To drive the point home, I liken this change in startup strategy to a similar shift that has changed the way we think of movies, because the changes are similar and separated by only a few years. Plus, everyone understands movies.

It used to be that if you wanted to release a successful movie, you would: write a great script (like a great startup idea); get the script greenlit (seed funding); attach some buzzworthy actors (experienced talent); strike a deal with a major Hollywood producer (Series A funding); film it and try like hell to stay under budget (build stage); launch into 2,000 theaters and cross your fingers (go to market); and, depending on the box office return, either fire up a sequel or go get a real job.

Over the past 10 years, the mainstreaming of streaming has changed everything about how we create and consume long-form filmed entertainment. And while the Hollywood machine can still produce the occasional blockbuster sequel that succeeds the traditional way (Top Gun: Maverick, Black Panther: Wakanda Forever), the big box-office bombs keep piling up, and we're never going back.

Over the past five years, several massive changes in the startup universe have similarly changed the traditional growth path, and possibly permanently.

Web3 Crimped Funding Ten years ago, cryptocurrency was a game for nerds and libertarians. The premise was solid, on paper. The execution left a lot to be figured out. I was writing about blockchain tech and creating my own coins back in 2016. In 2022, I've all but abandoned any effort to keep up with the tech, and the futurist side of me is still waiting for the noise to die down.

That noise is the rush of money that followed Bitcoin's initial price explosion into the thousands of dollars and beyond. Once that new money flooded in, the black hats quickly followed, and a once-intriguing web3 promise turned into a daily documenting of thefts, scams, and bankruptcies.

As the dominos continue to fall, a lot of new and traditional VCs find themselves crushed under the weight. It's not just about the loss of available venture capital, but also about the loss of faith in new technologies and their potential.

The Pandemic Shuffled Talent The global pandemic and its shock waves and various responses changed a lot of things for a lot of people, but two particular shifts impacted the startup and innovation world the hardest. Mainly, people started to say to themselves:

I'm not wasting my life doing something I hate, and I'm certainly not doing it in a place I don't want to be.

The result was a new emphasis on working on whatever from wherever. Platforms, tools, infrastructure, and protocols that allowed for distance collaboration and production quickly matured to meet a forced demand.

That evolution is being somewhat overshadowed by what it has wrought, namely, an exodus of talent, with headline-grabbing names like the Great Resignation and the Great Regret. But regardless of where that talent eventually lands, those tools and platforms aren't going away. And the companies that aren't facing a reckoning of their own crap culture find themselves outperforming their behemoth peers. For example, startups.

It also means that investors are figuring out that those big checks no longer have to be as bloated as they once were, in order to, say, fund the lease of a big and fancy HQ in downtown Manhattan. Waste -- either on purpose or by mistake -- is no longer tolerated or easy to hide. And that leads to the most important change.

Inflation Brought a Return to Profitability