• How Three Events Created A Permanent Shift In Growth Strategy.

    There’s a reason why a lot of the more recent news articles and thought pieces about startup success sound hopeless. It’s because the threads binding what a lot of people thought of as the conventional strategy for startup success are unraveling at a quickening pace.

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

    It used to be that if you wanted to release a successful movie, you would:

    Movie world Startup world
    Write a great script 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 Early stage
    Launch into 2000 theaters and cross your fingers Go to market
    Depending on the box office return, either fire up a sequel or go get a real job Unemployment line

    This went on for decades. But over the last ten years, the mainstreaming of streaming changed everything about how we consume long-form filmed entertainment. The pandemic lockdowns accelerated those changes and are making them permanent.

    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 last five years, three massive changes have similarly shaken the startup universe. In 2022, those changes locked in, and they’ve shifted the traditional growth path, possibly permanently.

    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:

    1. I’m not wasting my life doing something I hate.
    2. 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.

    But that 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

    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.

    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 don’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% focused on EBITDA, profit, burn, and runway.

    Just like we were in 2022.

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