2023 will bring clearer ways to measure startup success • TechCrunch

2023 will bring clearer ways to measure startup success • TechCrunch

2023 will bring clearer ways to measure startup success • TechCrunch

This year it will be more about nailing it than scaling it

Momentum the most active 12 months in venture investment history did not carry over to 2022, to put it mildly. As interest rates and inflation skyrocketed, geopolitical challenges arose, and the economy began to decline, fundraising slowed drastically during the year.

But if 2022 was the year of paradigm shift dynamics, 2023 will be the year we determine the winners and losers – and more importantly, when clearer methods for measuring success emerge.

A landscape for software companies

The tech ecosystem has experienced several downturns (though none significant) since cloud computing became the dominant trend more than a decade ago, but for many of us, inflation is the new beast.

It’s been 30 years since inflation was a tangible, real macroeconomic factor. When inflation is 7%, if you’re not growing at least that much, you’re shrinking.

In a tight budget environment, high gross retention rates can be a strong signal that customers love your products and get real value from them.

Simultaneously with inflation, the demand curve is being crossed – first we witnessed a period of strong product growth fueled by the COVID-19 pandemic, and now we see budgets and spending tightening as both start-ups and mature companies prepare to weather the crisis. storm.

We enter 2023 with a large number of known issues and limited predictability of what lies ahead. One thing’s for sure, though: this year will be more about nailing it than scaling.

Predictors of success

In this environment, investors will look for performance metrics such as high gross margins, high gross retention rates (how many customers continue to subscribe each year), rapid customer expansion, decreasing customer acquisition costs, shorter sales cycles, and productive sales reps.

Gross retention in particular will be critical as businesses need to be able to retain customers to stabilize their 2023 growth plans. In a tight budget environment, high gross retention rates can be a strong signal that customers love your products and get real value from them.

Investors also track the path to break-even based on the current balance sheet – through metrics such as cash consumption as a multiple of new annual recurring net revenues.

Assuming you have high gross retention rates, it may make sense to burn cash, but it won’t if you’re burning more capital than the amount of new business you’ve accrued. As growth slows down, many companies are reducing burnout rates accordingly, resulting in a wave of layoffs even in companies with strong balance sheets and market positions.

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