IT'S TIME FOR OPTIMISM. We’re on the cusp of a Great Reawakening for startups. Companies that survived the Mass Extinction that I called out in January 2023 need to go back on offense or risk being beaten by competitors. Here’s my take on what’s changed, why CEOs should be optimistic and how to get responsibly aggressive.
Why now? ⏲️ The software economy (a good proxy for the state of most startups) has bottomed out and is now stable and will improve. Growth is just beginning to return. Perhaps the best measure of that health is Net Dollar Retention and those rates are stabilizing at ~110%, according to Jamin Ball at Altimeter Capital.
By contrast, from 2022 to H12024, software growth cratered (NDR dropped from ~130% to 110%) and the VC firehose 🚒all but shut down (see Carta’s State of Private Markets report). But the worst is now behind us, as NDRs flatten, layoffs subside & the markets from Series A to IPO reopen.
Smart CEOs are rightly focused more on software spend and securing their next funding round than macroeconomic indicators or fears of a recession.
So what should you do now? 🧮Answer: Go on offense! Here’s why:
1️⃣Your cash burn has been low for a year thanks to a tough RIF or two.
2️⃣Deep opex cuts led to a negligible drop in sales and product velocity (real-world example below ⬇️) and operational discipline/efficiency is back.
3️⃣The AI train is leaving the station and you need to be on it.
4️⃣Your competition is on the ropes & TigerBank won’t save them this time around. 😹
So IF your cash 🔥is under control and your runway is secure, start thinking aggressively. Because if you don’t, a more nimble and aggressive startup will.
Real-world example: Podium, a later-stage software company, had great success until ZIRP. But then, like many others, it burned too much and lost efficiency. CEO Eric Rea was decisive and responded by cutting opex, getting burn way down and re-allocating R&D to invest in AI. Podium is now accelerating with AI as an Act 2 tailwind. Eric knows it’s a race, so he’s using Podium’s platform and customer base to go on offense, stay ahead of the competition and maintain operational rigor.
To sum up, here are four specific recommendations for how CEOs can responsibly go on offense and take advantage of this Great Reawakening:
Create budgets with stage-gates that unlock additional spend — e.g., if sales hits their target in H1, they unlock $M in extra spend for H2.
Start investing in Act 2 / Product 2 now! You cut your R&D significantly but you’ll never be a major platform without Product 2 / Act 2 Remember what you just learned and give it a small, agile team.
When a new thing is working, pour gas on it. If you develop a new product or module and the data on it comes back positive, reward it with increased budget.
Understand that not all of your new bets will work. Be ready to move on quickly. Otherwise you’ll be in 2021 inefficiency again 😱.
Now stop reading this and get back out there on offense!
