When growth stalls
David Peterson

Following the news that Airtable acquihired Airplane, and Pitch is recapping and focusing on profitability, there’s been a deluge of takes on the options available to startups who were overfunded and can’t seem to grow into those heady valuations. Ed Sim over at Boldstart wrote about returning cash to investors. Jamin Ball from Altimeter riffed on Ed’s tweet and added that it’s important for founders to be honest about whether they have a path to product-market fit at all. Jason Lemkin topped it off with a sobering take on why VCs don’t want to invest in mediocre growth.

All of these pieces of advice presume that the company in question is finished. Growth has stalled. The founders don’t believe they’ll reach product-market fit. The investors don’t believe the company will be one of 2–3 category winners. Everyone is looking for a way out.

However, what if your startup isn’t growing fast enough, but you still believe it might. What should you do then?

As somebody long obsessed with growth, especially at the earliest stages, here is the single most valuable thing you can do to kickstart growth:

Narrow your ICP.

Without knowing anything about your company, your product or your target market, I can say with confidence that your ICP is probably too broad.

It’s natural for this to happen. You don’t want to inadvertently miss out on revenue, so you widen your focus. You qualify a deal that is a bit off-piste, but seems likely to close. You decide to chat with a company that’s larger than normal, but brings with it a contract value that’s three times your average. No harm done, right? You’re just being opportunistic! You’re exploring, waiting for the right time to exploit.

But there are hidden, insidious costs to a broad ICP.

Everything is just a little bit harder.

It’s harder to know what to build next because users from different segments have different needs. Early growth doesn’t come as easily as it might otherwise because users from different segments don’t talk to each other as much, reducing the impact of any potential word-of-mouth. Well-converting distribution channels are harder to identify because your users don’t all hang out in the same spaces.

And eventually, you fall into what I call the broad ICP growth “doom loop”:

• You aren’t talking to the same buyer every conversation, so your messaging doesn’t work well.

• Your messaging doesn’t work well, so your conversion rate suffers.

• Your conversion rate suffers, so your sales cycle increases.

• Your sales cycle increases, so your growth slows down even more.

• Your growth slows down, so you widen your funnel to find ripe opportunities…

…and so on.

Of course, the problem could be that there isn’t a market for your product. However, you’d be surprised how many companies have essentially reached product-market fit for a narrow segment of their customer base, but just don’t realize it.

So, let’s say you’ve decided to focus more. What do you do next?

Parm Uppal, CRO of Luminary Cloud (and Angular Ventures advisory partner) is a master of the narrow ICP and brings a data-driven approach to exactly this problem. What he’ll tell you is that you should use your ACV and sales cycle as a guide. Look at your existing customers. What group has the shortest sales cycle at your target ACV? That’s the group that is probably best suited to your product given its current functionality. Double down. And moving forward, be ruthless in your prioritization. If a deal is taking longer than average, disqualify the opportunity and move on. Keep narrowing your target market down until you can accurately predict how quickly deals will close.

This might not work. But if you can find predictability with one segment, you can start to forecast. And if you can hit your forecast, you can start to plan for the future. And if you can plan for the future, you can attempt to expand into new customer segments. And if you can expand, you might be able to raise external capital. (Or better yet…you won’t need to!). And soon enough you’ll be off to the races.

David

FROM THE BLOG

It’s 3am. Do You Know What Your Third-party API Calls are Doing?
Announcing our investment in Lunar.dev.

Small & Strong Beats Big & Weak
Three startup paradigms in the LLM era.

The End of Entrepreneurship by Autopilot
The unicorn factory has stopped. What are the implications for founders?

No Words
The heartbreaking situation in Israel.

EUROPE AND ISRAEL FUNDING NEWS

Italy / SpaceTech. D-Orbit raised €100M to double-down on growth and expand its offerings to include space debris cleanup, satellite refueling and space-based cloud computing.

Norway / Robotics. 1X raised $100M to continue the development of its humanoid robot.

UK / Insurance. hyperexponential raised $73M to bring its pricing decision intelligence platform to the US market.

UK / Logistics. Vortexa raised $34M to bring its real-time freight analytics platform to the US market.

Israel / ComplianceTech. Anecdotes raised $25M for its compliance automation and management platform.

Italy / Generative AI. Contents.com raised $18M to drive the global expansion of its AI-powered content generation software suite.

Israel / Generative AI. Ask.ai raised $11M for its generative AI-powered “answers and insights” solution for enterprises.

Netherlands / Energy. tibo energy raised €3M to develop its smart grid management platform.

WORTH READING

ENTERPRISE/TECH NEWS

OpenAI launches GPT store. OpenAI has launched the GPT store, a marketplace for custom versions of ChatGPT, and has released a new team plan starting at $25 per user per month. According to Shahar Chen, the CEO of Aquant, “This new platform furthers the democratization of AI development, simplifying the way users and developers create GPTs and AI products. In 2023, AI solutions were broadly focused, but with the launch of OpenAI’s marketplace in 2024, we’ll see a noticeable shift towards vertical, industry-specific AI, moving from general industry applications to task-specific ones. This requires developers to refine their GPTs for more precise, specialized use cases.” The GPTs are the first step toward Sam Altman’s vision of agents that will do everything for users. However, the IMF warns that AI is set to affect nearly 40% of all jobs, according to their new analysis, echoing “a report from Goldman Sachs in 2023, which estimated AI could replace the equivalent of 300 million full-time jobs — but said there may also be new jobs alongside a boom in productivity.”

Carta’s credibility hit. Last week, Karri Saarinen, the CEO of Linear and a Carta customer exposed Carta for trying to trade Linear shares without his knowledge or consent. As Karri said, “this might be the end of Carta as the trusted platform for startups”. Indeed, after the backlash following the incident, including many founders threatening to stop using Carta, Carta’s CEO announced that they “have decided to prioritize trust, and exit the secondary trading business.”

HOW TO STARTUP

The hard truths. Jamin Ball shared a thoughtful post where he recommends founders ask themselves some tough questions: “Have we really built something that has differentiated product market fit and can sustainably exist as a standalone company? Or are we essentially walking dead but on endless life support with our big cash balance?” He continues, “the biggest challenge I see today — while 2021 cash balances are getting smaller, there’s still quite a bit of runway left in the system. And companies are taking false comfort in still having 2+ years of cash. So they aren’t asking the above question now because they don’t feel the pressure to.” Jamin Ball states that the importance of asking these questions today is because it often takes a long time to truly figure out the answers. Additionally if the answer is “no”, the M&A process to get the company acquired is difficult and Jamin Ball believes that in the next 12–18 months, “there will be a lot of companies coming to this same conclusion…And there are only so many acquirers out there. You want to be in front of the rush, not in the middle of the stampede.”

HOW TO VENTURE

New year, new optimism. After the rollercoaster of the last few years, many VCs are feeling hopeful for 2024. Many investors think the startup industry is poised for a comeback given that funding has likely already hit its lows and the exit markets may finally be coming back after an abysmal 2023. “Per Crunchbase data, M&A activity involving VC-backed companies dipped to just over 1,600 deals last year. While that may not seem low, it pales in comparison to the nearly 2,500 deals completed in 2022 and the more than 3,100 finalized in 2021. VCs see that changing this year as larger entities get more aggressive. “Public companies have hordes and hordes of cash they want to invest,” Chaddha said. “Many are sitting on more cash now than they were in ’08–09. Private equity and buyout funds also are sitting on a lot of cash. It is likely that the “mellowing” of interest rates and inflation will likely see the market thaw out. Many already expect some eagerly anticipated IPOs in 2024, such as Reddit, ServiceTitan and maybe even Stripe.”

Funding to Israel companies drops. As violence in the region erupted, funding to Israel-based startups has plummeted — hitting its lowest point since 2017. “Startups in Israel raised about $516 million in a paltry 42 deals, per Crunchbase data. That is the lowest dollar total since Israeli startups raised only $463 million in Q1 2017. The total is down about 69% from the previous quarter, which saw $1.6 billion roll to Israel-based startups, and 54% from Q4 2022.”