Establishing a business amidst economic uncertainty and achieving success takes more than just a driven founder with a great concept. It entails a sturdy groundwork that can withstand the fluctuations of the market. Today’s startups must prioritize profitability while expanding, a task that may not align with the interests of companies backed by aggressive venture capital funding.
During the pre-revenue stage, profitability may not always be at the forefront of a founder’s mind, but maintaining efficient operations and focus is crucial for maximizing the potential for monetization.
“Investors are engaging with fewer pitch decks from founders,”
according to DocSend data.
Investor activity only decreased by less than 2% from 2022 and 4% from 2021. Despite this, investors are still reviewing pitch decks at a higher rate than in 2020, indicating there is still a market for early-stage deals, although funding saw a 27% decline year-over-year in Q3.
Every market has its own set of opportunities and challenges. A few years ago, a favorable market for founders led to companies with unsustainable business models receiving unrealistic valuations through a “growth at all costs” mindset. This serves as a reminder that even in a highly founder-friendly market, there are still potential pitfalls.
Now that investors have taken a step back to reassess, founders must demonstrate that their company is built for long-term success with profitability and scalability in mind. This aligns with the trends of successful Big Tech companies like Google, Microsoft, and Adobe, which were all profitable or close to it before going public.
There will undoubtedly be founders who stumble in 2023, but there will also be those who succeed in creating the next generation of market-defining companies.
In a tighter economy and investor-driven market, establishing solid building blocks for the company’s foundation becomes even more crucial. Some of the most innovative companies in the world emerged during times of economic distress, and they were built to withstand the challenges of the market they entered.
It is expected that the next wave of market-defining companies will operate with the same resilient foundation. A strong groundwork not only attracts early-stage capital, but it also enables the company to scale effectively as it progresses through its life cycle. In the era of “growth at all costs,” profitability and unit economics were often disregarded or frowned upon. However, the mindset has shifted, and now founders must perfect their pitch, devise an efficient sales strategy, and prioritize product development with a sense of urgency to build a solid foundation for success that will entice investors.
