2023 is turning out to be a tough year for startups. Recent data coming out by Carta has shown the number of startups shutting down accelerating over the last couple of quarters. This is due to the slow down of venture capital deployment, which is forcing everyone to play their hands very tight, taking an abrupt turn from what was happening in venture land the last couple of years. While it is easy to say how painful it is for startups to go through this, there are a couple of different realities in play here that we need to understand.
The first reality that startups need to come to terms with today is that there are too many SaaS solutions out there. People are solution fatigued. For every SaaS solution, there is a sales rep of a startup begging customers to buy their product based on a half-baked product or concept that will inevitably lead to disappointment and mistrust. Startups need to understand that it’s not enough to have a good idea; they need to have a solution that is valuable for their customers and solves a real problem. Startups need to go back to the drawing board, focus on their customers’ needs, and build better products.
The second reality that startups need to recognize is that companies that would normally get funded are not going to anymore. Due to the current scenario, funds are getting hammered by their LPs to return capital to play it safe. They know they can’t go raise another fund right now, so you need to be exceptional to get follow-on funding. Very few startups are exceptional by nature of their stage, so it’s critical to ensure that the product-market fit is nailed down and solves a real problem. Startups need to put in the hard work, build a sustainable business model, and leverage their existing customers to add to their customer base.
The third and final reality is both a harsh truth and a wake-up call. Many good companies are going to die. While it may be difficult to digest this, the reality is that not all ideas are meant to reach the market. Unfortunately, not every startup will survive the challenging market environment that we are currently facing. However, we need to remember that this is a part of the business cycle and that there will be winners and losers in every industry.
In conclusion, this year is turning out to be a tough year for startups. The current scenario has forced everyone to play their hands very tight, making it difficult for startups to get the funding they need to survive. However, in these challenging times, startups need to be even more diligent in ensuring that their products and solutions are valuable for their customers. They need to focus on building sustainable business models, ensuring that their products solve a real problem, and leveraging their existing customers to add to their customer base. While it may be difficult to accept, the reality is that not every startup will survive, but that’s just the nature of the business cycle. Remember, those who stay vigilant, keep their focus, and keep striving to make their startup a success will be the ones that stand the test of time.
