5 ways startups are surviving the downturn

In spite of a global VC pullback, startups are learning to thrive

I launched a startup into the mouth of a global financial crisis. Not that I knew that at the time. None of us knew what was about to unfold in 2008.

I was not some Michael Burry of The Big Short fame, prognosticating the meltdown of the US mortgage market. The fact that Bear Stearns got wiped out only registered the briefest pause. I was simply too heads down solving this burning problem big enterprises were struggling with around HR systems.

Even when Lehman Brothers collapsed, it never occurred to me that it would affect us. That is until the VC’s that we were talking to stopped returning our messages. The global credit freeze was also a global startup funding freeze that eviscerated lots of VC firms over the next few years.

Fast forward to 2023 and again we are experiencing a major pause in venture capital. From the frothy heights of 2021 where over $638 billion of venture capital was deployed, 2022 saw only $451 billion deployed. And 2023 is not improving, with a mere $144 billion in deals in the first half.

While the markets see doom, the builders keep building!

As we talk to startups around the globe, the lack of capital is absolutely causing anxiety. For later stage startups, the freeze is particularly acute given their growth at all cost tactics. These startups became top heavy with extra staff and resources, so they have had to shed costs for the past year in a race to profitability.

Early-stage startups however come into 2023 with a different problem. They were already lean, but now they have to do even more with less, extend the little capital they have, and last just long enough to find traction. At the same time though, they still need to innovate and find customers.

So what are startups doing in 2023 to keep innovating while keeping their burn low enough to survive this year and thrive in 2024? In conversations with founders from Nairobi to Nashville, Berlin to Buenos Aires, Houston to Ho Chi Minh City, here are five insights we have uncovered:

  1. Optimizing Cost and Architecture

  2. Re-evaluating Product-Market Fit

  3. Exploring New Go-to-Market Channels

  4. Expanding into Promising Markets

  5. Using AI to Accelerate Customer Impact

Startups are taking a hard look at cloud costs. But they are also looking at how to get the most out of their cloud infrastructure to ensure they are prepared for the future. Some of it is simple housekeeping with the right alerts and automated cost controls. Some are exploring serverless architecture or optimized compute instances for better price performance. And then there are programs offered by cloud providers like AWS such as Well-Architected Framework that startups are using to button up their architecture.

In the easy money environment prior to 2022, many founders were deluded into thinking they had real product-market fit. They are now going back to the drawing board to listen to customers and reassess their market to ensure they are solving a problem that has a big enough market to scale. You can think of this as reversing product-market fit to focus on market-product instead.

While the market is still soft, startups that have found initial product-market fit are now examining their Go-to-Market channels. When the VC money was flowing, many startups were throwing money at acquisitions channels to pump up user numbers. Now founders are diving deep to understand how to lower customer acquisition costs. For example, AWS has been helping startups to market and sell across new channels through our AWS Marketplace as part of our APN, or AWS Partner Network. This marketplace allows any of the million plus AWS customers globally to buy products from startups through a straight-through, low-friction digital channel.

There are also opportunities for startups to take advantage of the market softness to drive growth as competitors retrench. Riding upon new go-to market channels, they are going beyond their current markets into new customer segments, industries, and regions. Of course, none of this matters if scaling into new markets creates a slow, choppy, and inconsistent customer experience. This requires a network delivery system that can deliver the lowest latency and fastest performance. AWS addressed this from the beginning to create a global presence that delivers single digit millisecond response times through our 32 regions and 102 availability zones as well as over 450 points of presence around the globe.The result is that startups can confidently offer a smooth and seamless user experience in whatever markets they enter.

Lastly, the best startups always stay focused on their customers, innovating on their behalf. More and more, startups are looking at AI as a way to deliver more for customers. Now the rise of Generative AI is bringing the power of AI to any startup. For AI-core and machine-learning startups, they are building the models that others use, by accelerating their delivery through Amazon SageMaker and optimized machine learning compute on Amazon Trainium and Inferentia. Other startups are building apps on top of LLM's using Amazon Bedrock to plug into their LLM of choice. Then there are startups that may not be AI or ML at the core, but they apply AI to become more operationally efficient, deliver features faster to customers & create more value for customers. One way to do that is using Amazon CodeWhisperer to write code 40% faster that is also more secure and efficient.

What has been encouraging is that as we have traveled across the globe, startups are finding success. It takes patience however, and we have seen that the founders that are thriving are using a few of the strategies shared above to create much stronger and resilient businesses that are better poised for breakout growth.

What has been the experience for your startup the past year? What steps have you take to ensure you can survive and thrive?

On the app formerly known as Twitter, a debate started raging on the comments from one notable startup voice about career “jumpers”.

Are career jumpers necessarily bad hires?

I hear this often from founders, but this is not an ideal policy when you are an early-stage startup in need of talent. In fact, the best talent you can get are the very people likely to “jump” around.

The best talent gravitates to companies that want to innovate fast, operate with consistent principles, value employees, and create an environment that allows their people to do their best work. These employees want to have big impact early on, and don't wait for the right opportunities to arise. In the course of twelve months, they will have already created a ton of impact.

The result is that the top talent are rarely “lifers” or willing to hang around companies longer than necessary. Once they are done, if there is nothing left to do that is interesting, they find the next interesting challenge elsewhere. And those are the type of employees you need for your startup, especially in the early days when you must operate at speed and demonstrate progress.

Founders will often push back about wanting loyalty. But most startups do not make it past two years. Plus, not even most founding teams will be the same 3-5 years out, and the same is true for rank and file employees. So perhaps it is worth revisiting the thinking that “jumpers” are bad hires.

Vietnam was an astounding experience. Many thanks to everyone that took time to meet in Saigon and Hanoi! And I have to give a shout out to Savvycom for setting up a talk where I spoke about how startups are thriving in this downturn (yes, the topic of this newsletter).

Talk in Hanoi at the Savvycom office.

If you are curious to learn more about Vietnam, here are some of the recent LinkedIn posts I shared about my latest observations:

The Southeast Asia tour wraps up next week with a few days in Singapore to catch up with founders. Then things will quiet down for a bit in August before we get back on the road, including talks in Peru, an East Asia tour with 42Geeks, and some more ASEAN trips.

If you have events or community gatherings you would like to share with our Founders in the Cloud community, please let us know!