2023 was a tough year for a lot of companies and 2024 isn’t going to be an exception (or will it?). Nearly 30K companies shut down in 2023 as they ran out of cash and couldn’t raise capital further.

2024 is the beginning of a new era - focus on profitability, strong unit economics, and responsible growth are the themes. So, how do we survive and thrive going into a new era of value building?

In this post, we’ll cover the state of the startup landscape in the last couple of years, projections for 2024, and measures to ensure your company becomes successful.

Going back in time - a couple of years

2021 was THE year to get your desired valuation (almost) and it was all good - investors were optimistic, corporates were thriving, and everyone seemed to be happy. But it wasn’t the real case. Behind the scenes, there was a storm brewing. While some strong companies thrived, weaker companies started to crumble under the heavy valuation pressure, rising interest rates, and so much more. Geopolitics played its role too.

By mid-2022, more and more investors started evaluating deeper than before - is the GTM strong, do the numbers make sense, and so much more. The extensive due diligence led to the sifting of weaker startups - slowly but surely. The pressure on operators became significant and the answers were a bit unclear.

In 2023, it became very clear that you can’t rely on external capital for long enough. Operators needed to find a way to become profitable and pivot as needed. It was technically too late for about 30K companies. We talked to about 20 companies, small sample size, and realised that about 100% of those had ZERO focus on strengthening their unit economics or customer profitability.

Why is that so? Well, these companies were based in very early markets such as esports. The esports industry is growing at 14% CAGR but is heavily reliant on very limited business models which might only be suited for some types of companies in the space. And so many such mismatches made it impossible for companies to find product-market fit (PMF). Eventually, these companies shut shop.

Moving from 2023 to 2024, what can we expect?

2024 - a year of strong unit economics and growth

4 weeks into 2024, we have already witnessed several companies raising capital demonstrating strong customer needs. But raising capital isn’t the only criteria we should be following. Community and purpose-driven companies have paved the way for us to follow.

We are not fortune tellers, but we know for a fact that the secondary markets are going to be in demand (we’ll cover in a separate post how this affects us), investors will be doubling down on seed stage companies, AI disruption will change the way GTM is looked at, impact companies will see more interest and more.

An unspoken aspect of these projections or predictions is the developing notion of raising capital once principle. In the new era which is driven by AI and disruptive business models, more companies will be looking into raising external capital only once before becoming profitable.

What can we do to become successful and profitable? In the last 3 years or so, we have seen a huge surge in the number of companies investing in communities around their offering. Building a community around your offering is a sure-shot way of enhancing the value of your offering.

We believe that community-led and founder-led influence will drive higher sales compared to all conventional approaches. But there’s more to it. At the core, focusing on customer profitability and building strong unit economics are going to play a crucial role in the success of companies.

Strengthening unit economics - a tough journey

If you want to take away one idea from this post, then make sure it's this - regardless of whether the investor landscape changes for better or worse, strong unit economics means that the predictability of your company is better.

To achieve positive unit economics (or lean unit economics as we like to refer), companies need to focus on actively tracking KPIs. Base KPIs which everyone should track are -

1. Revenue (MRR and ARR if you’re a SaaS business)

2. Gross Profit

3. Net Profit

4. CAC

5. LTV

6. Burn Rate

Of course, there are many other metrics which need to be tracked but the above 6 are fundamental.

But, what does tracking actively mean? In our experience, data siloing is your biggest enemy. Data siloing makes your data isolated and not easily analysable. Actively tracking your KPIs means that you’re tracking associated metrics across business functions.

An example of what we track is the revenue by sales rep and customer retention by sales cohort to get a better understanding of our sales process. Almost every large company has a directly correlated analysis of finance with sales functions. We track the retention and LTV associated with the sales process to better design our sales playbook.

KPI tracking on a deeper level is unique to each company but below is an image of some metrics which you can track to ensure you’re on track with your goals.

Conclusion

While we covered some aspects of KPI tracking and strengthening unit economics, in a later post we will cover how to track and perhaps some methodologies to maximise the impact of KPI tracking. Stay tuned for a deeper dive into refining your company’s financial strategy for long-term success