Building a resilient startup. A CTOs perspective.
Historically many great startups have been forged through the fire of economic crashes and recessions. An optimistic way of looking at what’s happening, is that we as startups now have the opportunity to build resilient companies!
The largest proportion of spending in an early-stage startup (pre-seed, seed, series A) occur in product development. The general perception is that you have validated your idea, found product market fit and have a few paid customers buying in and therefore startups feel confident on spending higher amounts on the product. This translates to, at least in SaaS startups, hiring more and more software engineers to pump out features at a rate comparable to the sales team selling them. It’s no secret that SEs are a hot commodity and SEs who have experience building scalable SaaS products are even more so.
This has not been an issue for early-stage SaaS companies so far as the multiples at which they were able to raise capital soared over the past 5 years, reaching 15X at its peak during the pandemic. This resulted in companies paying more and more to SEs just to be competitive. The economic downturn we are experience currently has brought down SaaS multiple to as low as 5X but has also increased the investment criteria, which is forcing startups to take their burn rate seriously, and rather than focus primarily on explosive growth in the short term, the focus is shifting to being capital efficient and slower sustainable growth.
Making micro-optimisations in early-stage startups is counter-productive and focus should solely lie on building features that will have a direct correlation to your early customers adopting your product or understanding your customer needs better
At Eningo, we have always had this mindset of being capital efficient and that trickled down into how we approach our product development as well. In an article I wrote a few months ago, titled “How not to build product in an early-stage startup” I touched on how making micro-optimisations in early-stage startups is counter-productive and focus should solely lie on building features that will have a direct correlation to your early customers adopting your product or understanding your customer needs better. Cost-optimised product development process is crucial to the survival of your startup in times when external cash dries up.
Another important factor that helped us, is having strong technical skills and technical leadership in our founding team, keeping the initial development as much as possible within the founding team. This approach, I think gives startups like us, the time to adjust to downturns like these. Historically many great startups have been forged through the fire of economic crashes and recessions. An optimistic way of looking at what’s happening, is that we as startups now have the opportunity to build resilient companies!
