The #1 Trend in Startups This Year

Hey— it's Christine,

If you subscribe to my newsletter (which you should!) then you'll know that I provide founders with the latest advice on building your company.

It also means that you may have read the start of this article (as part of my once-a-week Startup Secrets newsletter). If this is you, keep scrolling down so you can get to the good stuff!

But otherwise... 

On my mind this week:

This week I had lunch with a friend who is raising a round of equity crowdfunding for his business. 

I hesitate to call his company a "startup" because he is beyond the zero-to-one phase and is well on his way to scaling a working model.

But he needs money to help is company grow—hence the fundraising.

What I found fascinating about our discussion was that despite the fact that he has personal relationships with a healthy number of VCs/private-equity folk, that he, like me, and like so many of the founders I am speaking with these days, has decided to go the "non VC" route.

This is part of a broader trend I am seeing in the startup world. 

Many founders (particularly female founders) have realized that they don't want to be on the venture capital path.

They are not interested in having people on their board telling them what to do. Or more broadly, they are not interested in becoming a billion dollar business at all costs (a pre-requisite of taking on venture funding). 

All founders want to be successful. We want the freedom to make decisions on our own terms. And yes, many of us are driven by getting rich.

But before startups were even a thing there was another path to get this done.

It was called:

Building a business. 😎

I know, I know, it doesn't sound particularly sexy, but hear me out!

A major trend I am seeing in 2024 is: a rejection of raising venture capital and a return to the basics of business building.

In other words, now that funding is not so easy to come by, founders are being forced (by necessity or design) to "think like a small business owner" rather than a "startup founder".

It's a subtle difference.

Small business owners are focused on revenue almost exclusively. They don't have the luxury of millions of dollars in the bank and often have no idea about the VC path. The lenders that small business owners approach (banks, etc) are more risk averse than VCs so the small business owner is forced to figure out the mechanics of their business model early and know their math.

In contrast, during times of easy money, founders get lulled into a false sense of security. They can raise now with an idea, and figure out the revenue part later (hello Uber, WeWork, and hundreds of other major startups over the last ten years). 

The era of easy money has now ended (for this cycle at least). Unless you're an AI startup (see below) you're likely going to find it difficult to raise via VCs and angels over the next few years.

You either need to find an alternative source of funding (e.g., equity crowdfunding) or you're going to have to bootstrap and figure it out for yourself.

Below I discuss the five factors that are fueling this trend and why it will be difficult to raise for the next few years at least.

But the good news is this: by understanding this trend early, you can shift your mindset, and be WAY ahead of competitors, simply by being revenue-first focused. The day-to-day activities you'll be undertaking are listed at the end of this post, but first:

Here are the five factors that are fueling this trend (followed by how it affects YOU and your business):

1. A reduction in available venture funding - while we may not have entered into a recession (yet) VCs are having a harder time convincing wealthy individuals to invest in their funds. Put simply, the perception is that it's more risky than it was 18 months ago to invest in startups and this leads to a shrinkage in the pool of money being deployed by venture capitalists.
   
   
2. Investors are sheep and are only betting on AI - if you've been raising money in the last year, you've probably noticed that nearly all the companies closing multi-million dollar rounds have artificial intelligence at their core.* This is great if high-tech is your focus, but if you have a different type of business, you may not be able to close a round. 
   
   *I personally think we're in a bubble with AI. Just like the blockchain, NFTs, and crypto, there's a lot of fluff out there right now and no one killer application or reliable business model. But that hasn't stopped investors jumping on the bandwagon and ignoring everyone else.
   
   
3. COVID woke us up - the expectation when you take venture capital money is that your business is your life. 24/7, 365, you must do whatever it takes to grow and be huge. But the pandemic brought about a different sense of what it means to have life-work balance... Do you really want to sacrifice your friends, your family, or your health to grow a company because the whip is being cracked by your investors? When faced with the choice of having a company that is smaller, but that gives us control over our lives, and a billion dollar company that we had to kill ourselves to achieve, many founders are simply opting out of 'big IPO venture' and into 'small sustainable businesses'.
   
   
4. A return to profitable paths for growth - For a while, VCs and others would invest in businesses that had no idea how they would become profitable or whose model was to continuously ride the edge of profitability, or even never turn a profit at all (hello Uber!). With the shrinkage in investments, this is all changing. If you're not in the world of artificial intelligence, investors are looking for real business models and companies that have a solid growth plan. This favors companies who are further along and limits the number of non-AI early-stage startups getting funded. If you're in this latter camp, it's time to reassess.
    
5. An alternative funding ecosystem is growing - Small businesses have always needed money and traditionally this has come from banks, grants, or loans. Equity crowdfunding (where micro-investors can invest in your company in return for equity) is the new funding mechanism on the scene. Now, we have an infrastructure in place for taking investments (as little as $100) from strangers around the world. This democratization of funding gives founders more choices. And many, like my friend, are turning their backs on VC funding all together in order to take this path and maintain more control of their businesses. 

What this trend means for you this year:

If you are driven by building a multi-billion dollar, venture-backed, IPO-type company - go YOU! This is awesome and you should certainly focus on a path (likely VCs) that will get you there.

But if you're a founder who assumed you would do VC funding because "that's what startup founders do", but are now realizing that getting money is hard right now, OR that the lifestyle you want is more aligned with a different type of business and/or exit (perhaps becoming a $30M - $100M company, vs. a billion dollar venture) then here's my advice for you:

In 2024, given the funding landscape, you must get back to basics.

What this means in practical terms:

1) Sales > Strategy

Get your head out of Powerpoint and Planning-mode and into the only mantra that matters: "how can I get dollars in the door?". By being truly ruthless about prioritizing your activities around money coming in, you'll make decisions that actually get you off the ground, without needing funding from anyone. This is what small businesses have always done and startup founders in the current climate need to think this way too.

2) People > Product

Stop spending hundreds of hours building a prototype in a vacuum before you have a customer base to sell to. Spend your hours building a following and a community of people that are interested in a solution to the pain point you've identified. Test the waters with no-code mock-ups and the simplest thing you can think of that you can ship in a week. The important question is: "what can I sell next week and how will I reach real people to sell them something". This is because sales > strategy and also > product. You can build the most awesome app out there (i've done it!) and then try to find customers, but without funding behind you (which is difficult to get right now) it's 1000X harder than building a customer-base first that can guide what you need to build.

3) Bootstrapping > Fundraising

In a climate where it's difficult to raise money, there's no shame in bootstrapping for longer. I have a day-job while I build out this passion project: Startup with Christine. The day-job gives me the ability to live and eat and breathe with freedom. Yes, it means my business will take longer to scale, but I'm OK with that. I'm in this for the next 10-15 years and I plan to be the majority owner of this company for life. Does this mean I'll rule out fundraising in the future? NO. But it does mean that I will only fundraise when I hold the power. That is, when I have my business-systems so fine-tuned that I can show with confidence how to put $1 in and get $2 out. Or I may not raise at all! The point being, the choice is mine. And there are plenty of businesses with a small team that are content to bring in $3-$10M a year without scaling beyond this (sounds pretty good to me).

Final thoughts:

 As we head into 2024, it's time we startup founders asked ourselves some fundamental questions about what we want and how we'll get it. 

Ask yourself:

1. What's the the lifestyle I want now and in the future and therefore what's the right type of business to build for me?
2. What type of funding or money will I need to support that?
3. If I don't want to be VC-backed, what are my options? Will I raise through equity crowdfunding? Will I bootstrap for longer?
4. How can I ruthlessly prioritize getting money from real customers today so that I hold the power, if/when I decide to raise?

I know you'll crush it once you answer these questions. And as always, I'm here to help. Share this article with your team, and/or sign up for my newsletter so you don't miss any of the systems I share that will help you build and scale your dream business faster and with less stress.

~Yours,

Christine "back to basics" Outram