Last years feel like a never-ending rollercoaster. In 2022, not only did the world return to normal, but the pendulum was completely swinging. Markets Gone From Covid, And The Sky For some tech businesses, severe economic uncertainty is the limit, and now a recession… 2020-22 may be the most challenging time for tech entrepreneurs since the advent of the Internet. ,
Everyone is trying to understand the situation. As noted in Q2, volatility will continue to define the next months… Therefore, many investors today are asking themselves two questions when looking at new opportunities, and assessing the outlook for their current portfolio companies. Time.
Q1: Is this product necessary or good?
One thing is for sure – the budget is low everywhere. If you’re a consumer business or enterprise sport, everyone is spending less. Therefore, investors are trying to find out: ‘Is this product good or necessary for you?’ Simply put, do you believe that your product or service is important to (potential) customers? Or do they just ‘appreciate’ it and leave when things get tough…?
In times like these, assessing the ‘DNA’ of your product is actually simpler than usual. You just have to see whether people keep buying even in low budget. As discussed in my previous post, ‘The winners of the current market are non-discretionary goods and services. These are products that people cannot delay in buying as they are essential products. It is relatively clear so far which companies have suffered the most. This does not mean that they contain substandard products. Their offering is somewhat low on the priority list of their customers. If they can, customers will continue to buy them. But now they spend their budget only on other things. These products come in a good range.
Essential products will continue to sell (almost) as before. From time to time, you have to slash prices a bit to win the deal, but your product is so important to companies that they have to buy from you. Just be sure to get creative and structure deals to capture potential pricing later. But, right now, the goal is to sell to as many people as possible… the lost upside will eventually come back to you.
Seeing the new opportunities, investors, especially the early stage ones, are also trying to find out the ‘DNA’ of your business.
Should it be or should it be good? ‘Should have’ is a loosely defined term at this stage. It usually boils down to whether a product can be a critical component to operating a business (saves time, energy and/or money) and/or quickly reassuring users that it will last their lives (a lot). ) makes it better. An essential product fundamentally changes the way stuff is done – either by changing existing processes to be 10x better or unlocking new value that wasn’t achievable before. Once used, companies or people will rarely go back. On the other hand, a good product will provide good value – perhaps twice as good as doing it by hand or with a spreadsheet – yet it is not valuable enough to compel a significant set of adopters or payers.
Of course, you can build great business with good business, but it can be more difficult to scale. The more churn, the longer the sales cycle can be, especially when times are tough and budgets are tight. A must have a clear ROI for its users. In the end, the best way to check if you have a ‘must’ product is to threaten to take the product away from its initial users. If they don’t riot, you might want to consider it.
As a result, the right to budget looks very different these days for the not-so-good and the essentials.
It is no secret that since the beginning of the year the pendulum is back for everyone… from ‘Development at all costs’ to ‘Efficient and sustainable development’.
The difference, however, is that fundraising from new and existing investors will be more difficult for good products. Therefore, budget scenario planning should consider the possible path to profitability. My general rule of thumb for these companies is to focus on achieving profitability while keeping an annual growth rate of 50%+ if possible until the market turns better. Where will the budget for such a scenario go? I know a few founders who have been a bit strict with Covid and acted accordingly. They all had to pivot (more on this in a later post, stay tuned…). But many are now running profitable businesses and making a comeback in post-Covid demand. There is smile on everyone’s face. It was brutal, but they are back in the game, and stronger than before.
On the other hand, companies with essential products should remain aggressive. Have frequent open discussions with your investors. If they are good investors, they should give founders the confidence to continue executing… Great early-stage companies, in particular, need the confidence to try and hold onto their market demand. For these businesses, fundraising must also ‘work’ with new investors: ‘recession-proof’ businesses are in vogue these days…
Question 2: Will the post-Covid jump continue?
At the start of the pandemic, many tech products were blown away by the accelerated developments they were experiencing. Curiously, those who saw their demand disappear during Covid are now experiencing a similar increase. Beginning in 2022, it is clear that we are back on the ‘pre-Covid trendline’ for the 2020/21 winners. But, as markets reopen, everyone wants to get their hands on products that no one wanted or needed in the last two years. These post-Covid winners see demand exceeding pre-2020 levels. Think about the suppressed demand in hospitality hiring, real estate in major cities, travel, etc.
But, after the first excitement of getting back in the game, it is necessary to understand that this jump is probably temporary and we need to budget 2023 accordingly. Let’s enjoy it while it lasts, but be prepared for regular time again…
Whatever your situation, the good thing is that everyone is doing more and less. Everyone, the covid and post-covid winners, have gone through budget cuts over the past 2 years, and most entrepreneurs tell me they feel a lot better about their organizations. In some ways, it can sometimes be easier to build great companies in a down market. Greatness in execution reappears and is not drowned out by the inevitable over-funding of one’s competitors.
I had the privilege of going to Egypt for my honeymoon week this summer. I was the first to visit this great place with a richness of history and culture that you will not find in many other countries. Here is a picture of the Great Pyramid of Giza. Probably one of the most impressive sights I’ve ever seen…
life is beautiful,
Other material I found useful
– Our cyber security company Cyrebro has raised $40M Series B to grow and grow its North American presence. The company eliminates the costly effort of building an in-house security operations center by providing SMEs worldwide with access to an easy-to-use and scalable SoC platform.
– Our femtech company Flow introduces Anonymous Mode: ‘The beauty of Anonymous Mode is that it makes it possible for users to still gain personalized experience and insights based on the data they are providing, but at the end of the day , that that data cannot be tracked back to them…’ Data security is critical in the healthcare sector. It’s great to see tech companies innovating to give users the best possible experience while ensuring the security of their personal data.
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