The Early Stage Tech Market in 2023
Writing for me provides a clarifying function. I write about ideas - from a book, for a business, a market observation, or a management lesson. I write to distil. When I sit to write it out, sometimes it flows, but just as often the opinion 'won't write' and I need to go back and think about it more.
My writing is a personal repository of ideas I want to revisit over time. I search by keyword, remembering a topic by person, quote or analogy, and then return to the argument. Clarification through time.
I'll do that with this piece next year.
Here are three themes for the early stage tech market next year:
Minimum Viable Company. I join the consensus in believing we won't see a quick snap back in risk assets in 2023. The implication of a longer recovery for the startup market overall will be continued caution in spending throughout the ecosystem, from Angels and VCs to founders.
What interests me most though, is the smallest companies, those with less than 10 employees. Turned away from traditional funding, and wary to spend their own capital, these entrepreneurs will discover they can build and deliver a digital product or service at scale with dramatically fewer employees and services than even just a few years ago.
The 'unbundling' of the startup that began with AWS replacing racked servers continues through almost all functions, from marketing and sales, to data analytics and insights, to team operations and support. No/low code automations allow for ever more tiny companies to launch, and scale, without significant additional investment.
Perhaps these businesses won't become massive $10B+ enterprises, but a fatter tail of profitable bootstrapped / angel funded $10M+ revenue companies will change the ecosystem. Companies will think long and hard about taking on a standard growth round. I'd much rather be a $100M fund LP with greater flexibility for deploying capital and profitable exit than an investor in a $1B+ fund.
Micro Multinationals. Fifty years ago, the first true multinational companies emerged. Large manufacturers and consumer brands, with localized manufacturing, distribution and sales spread across dozens of countries. These companies optimized production costs, brand management, supply chains and asset allocation within complex global businesses.
Now, imagine doing that with 20 employees. Crazy right. But, we are already seeing very small companies (less than 50 employees) building teams and tech across multiple countries. Now, even the smallest companies are also localizing products and services to sell in diverse markets. We see this in South America and Africa in fintech, and in Europe across the consumer web.
Micro multinationals, unlike their larger global processors, are finding their footing through digitization of nearly all corporate activities, from team meetings, knowledge management and training, to the entire sales cycle and local legal/tax/compliance. The Cambrian explosion of digitally native local partners and services providers allows for localization without local hiring. Financial and information networks to serve these companies are developing from bottom up, negating the scale benefits once enjoyed by larger companies. As a result, expect a flotilla of newly established micro multinationals to compete globally.
The New Game. Startups' key advantage is speed. Speed is achieved through focus. Focus is maintained by alignment. Alignment is provided by culture.
Twilio founder Jeff Lawson provides the most useful discussion of what culture building within a startup consists of with his Heros, Symbols and Rituals framework (podcast discussion here). Develop a shared set of heros, symbols and rituals, widely understood and embraced by the early team, and high performance follows.
While a lot of digital ink has been spilled in the last few years on remote vs hybrid office structures, much less is talked about how post-covid startups are exploring a new range of possible corporate business practices and goals.
Founders today are influenced by covid, but also by societal issues from climate change to social justice. While many organizations drive as hard as ever, others look more toward finding a balance between work and life. Increasingly, corporate purpose is defined more broadly than shareholder return. None of this neatly fits into a clean cap table and stock option pool. And, all founders and investors are navigating this increased complexity in partnership with ever passionate, and vocal, employees.
Next year, the stories of a new generation of leaders building cultural touchstones in novel ways will emerge. These leaders are developing shared heros, symbols and rituals which honor the particular balance and unique approach of their company, inspiring colleagues and holding focus for a collective goal. Their work is groundbreaking, for collectively our community has few models to follow in this new age of capitalism. They will rightfully attract attention, and resources, in the new year.
Closing Out. 2023 closes the second decade of Chris Anderson's Long Tail thesis (first published in 2004). Rereading Anderson today, so much was prescient about the power of the internet to fundamentally change business models and markets. Yet, we are nowhere near the end of the long tail's long journey.
All three of these predictions for 2023 are continued extensions of the Long Tail thesis. More niches abound, whether those are small, capital efficient US companies, micro multinationals, or idiosyncratic purpose driven companies using business for more than profit. It will be a good year for David, even if Goliath continues to struggle.
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