• a quick reality check for startups
• more signs of a bear market
• Americans going to London

 

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Observations

I have found myself lately advising a few startup people about some recurring topics on how to go about doing a quick self reality check in the current context - and thought to put it down in writing as well, maybe other folks will find it useful.

1. KPIs Keep religious track and know by heart your KPIs aka the main navigating data. Burn rate, cost structure, product usage, acquisition costs, hiring needs. Correlate with cash in the bank and new and recurring sales - this is an equilibrium point that gives you operating grounds for pushing for higher velocity or slowing things down.

2. Scenario strategy Do scenarios and be prepared for unexpected events. Those can be exogenous - i.e. market-related - or internal - i.e. not meeting the sales numbers or not shipping product in time. It is important to have a cogent strategy and follow it accordingly but be ready to fine tune, shift or adapt on the fly to whatever the market gives you or odd circumstances may appear. In more cases than not, a good strategy with sound fundamentals and clear objectives can get you a long way if executed correctly.

3. Econ 101 Make sure you understand the supply and the demand drivers in your business and how they're impacted by the overall market environment.

Have a clear understanding of fixed and variable costs and how you expect them to evolve in time. It is important to grasp those particularly because Covid distorted quite a lot of the natural dynamic evolution of the market and now we face an inflationary context - is it going back to pre-covid trajectories? What will be the new normal, is it deteriorating now or will it ameliorate short term? Have mental contingency scenarios for it. 

If, for example, you run an animal farm - your variable costs includes the animal feed and cereal price evolution (highly dependent on macro factors). Or, if you do SAAS, your infra epxenses are the bulk of your fixed costs together with payroll. Regardless of the industry evolution, are you sitting on the best prices? Is there more room for negotiation or hedging against what's to come?

4. Sales wise - do you have the right revenue model? If you're a B2B is there a consumer play? If you're doing consumer is there a white label play in the market? Can you invent a marketplace on top of your asset? Is the pricing right and have you done the proper customer segmentation? Are you aiming for the low hanging fruits and is the cost of sales worth the overall effort for what you're trying to achieve in the greater market share game plan?  

Related - do you have the right compensation plan for your sales team? Understand if the rep performance is/can be affected by the bad market or whether you need to change the strategy. If they're doing a good job in a shitty market make sure they have the right incentives to keep doing it so.

5. Cost of acquiring business - what are your channel acquisition costs? What impact does it have shifting budgets from one to the other in terms of CAC, LTV and the overall marketing spend? It is important to know the unit economic evolution by channel and be able re-allocate based on new vs recurring customers profitability. At early stages, it's all about testing the quality vs cost of your users and iterating until you get it right. 

Also notable, since the Euro currency is at historic weak levels, perhaps a good idea is to look at your geo spread - if you're in Europe, the biz devel in US has become 20% more expensive over night and tactically it may be more interesting to focus on Euro markets - switch as much as possible to digital only in the US and refocus on your core markets.

6. Always be recruiting even if not actively and keep an eye on the job market. There's many startups struggling and thusly good talent looking to switch. I'd be wary of corporate heads looking for startup gigs - startups mean risks, scrapiness and uncomfortability, and you don't get those in corporate environments. Understand if you get job hoppers or long-track runners and make an offer only if you can afford it.

7. Talk to your peers - from your industry and/or adjacent ones. Gather intel and see how you benchmark in the market - both against best in class and players from other tiers. Understand if other folks face the same problems as you - it's easy to relate and can be useful to learn from people who are in a similar position with you.

8. Talk to your investors, if you have any, and don't be shy to ask for things or advice. Worse case scenario - they have eyes and ears in the market and they should be knowledgeable about the overall evolution. Best case scenario is they're in it with you - when things get tough is the kind of moment when investors can prove their worth, outside the money they put on the table and a few phone calls they can make. Don't postpone hard discussions if they involve the bad news of running out of money soon - cut to the chase and suggest a path forward while making sure your objectives are the best outcome given the circumstances. Don't be aggressive to opposite positions - understand the feedback, discuss alternatives and incorporate what makes the overall solution better. Put ego aside and optimise for the business not for your vanity.

9. Get resources If you need financing in the short term, tough luck - it's a bad market for selling equity. Not impossible though but do consider alternative sources. The best financing for any business is from the paying customers - is there any scenario you could work out in this direction? (see #4 from above). Also, do your homework about the EU funding choices and local state-owned agencies to get grants or loans at favourable terms (Almi in Sweden, BPI in France, CDTI in Spain etc). Yes, it's a lot of bureaucracy and not the best experience but it can work out for short term breathers. Revenue-driven finance providers can also be a path to explore. 

10. Keep it real Don't take for granted the advice you read from (social) media or newsletters like this one. It's worth as much as much as you paid for it. :-) Seriously though, your situation is unique, make your own assessment and understand what works for you and what doesn't. Be realistic and challenge your own assumptions - and find advisors able to do the same, give you a no-BS, unbiased take, which is the opposite of what a standard consultant/investor will usually be like. Make sure you regularly talk to a circle of people whose opinion you can trust and who can provide an alternative to what you find from the day-to-day entourage. 

Last but not least, if you didn't already, find mentors and/or advisors, you're on a very lonely road out there. Good advisors are ideally peer startup people, dudes who have built companies and can easily relate to and provide insightful advice. Find a way to incentivize them via equity, seat boards, project-based fees etc. Again, the points from above are basic stuff, I would assume any good board should be able to have a decent discussion covering them in depth. And even though you may be on top of your game, talking about your assumptions and getting challenging opinions on what you do, can only be beneficial and keep you on your toes.

 

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Cheat sheets

The most active investors in Europe in H1 2022
🇸🇪 in Sweden
🇫🇷 in France
🇩🇪 in Germany
🇬🇧 in the UK
🇺🇸 Americans
🇪🇺 top 250 

The largest deals in the Nordics+Baltics in H1 2022
• 31 equity-based transactions that were higher than $50 million
• none of them was closed at $1 billion or higher.
• 2 of them in the 500M-1bn bracket, 16 of them were in between 100M and 500M
• 2 from Lithuania and Estonia each, 4 Danish, 5 Norwegians, 6 from Finland and 11 from Sweden.

link

 

Note: the reports are available for Nordic 9 paying customers only. You can become one from here - use code SundayCET at checkout to get 10% off.

 

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But who will do construction work or drive buses now?

 

 

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Watercooler talk

🇬🇧 London baby London is still the first go-to place for European founders looking to scale their startup pre-expanding into US (arguably at peak), all this while the British legislation is in a quasi anti-global post-Brexit phase (see the graph above). 
• And in spite of a bearish market, it also looks like some American companies look to London as their expansion leg into Europe, with none other than Instagram's head Adam Mosseri announcing moving over in order to make the city a hub in his quest of totally cloning TikTok. 
• Maybe Adam wants a change of scenery from Silicon Valley and London provides better inspiration, or maybe - just maybe - it is also a cost-saving measure for the mother company, as engineers in the UK are up to three times cheaper than in San Francisco and the Euro is weak vs the US dollar etc. Besides, life is sweeter in Europe than in US anyways.
• In other not-so-unrelated news, here's some really odd advice for investors moving to London.

💲 Y Combinator announced narrowing the current cohort size to roughly 200 startups(down 40%), citing downturn and the “realities of being back in person”. That's still 25% more than in 2020 btw - in Europe the current YC summer class has about 20 startups(down from 40 in winter).

Also, coincidence or not, a good chunk of the recent YC graduates from Europe raised seed rounds at 1-3 million levels (i.e. 1, 2, 3, 4, 5, 6) this spring which would seem rather normal for a seed round but in reality are pretty low compared to i) the usual YC-induced hyped valuations and ii) some similar European SAAS deals which investors fought teeth and nail for in the first part of 2022. Hard to believe that the investors demand was that low, I'd rather assume the founders followed the standard theory particularly applied to the bear market - de-risk one step at a time, stay away from the hype and keep costs down, because it will take longer to figure out the business than you expect. And, of course, build something people want.

🇬🇷 The Greeks are at it Vice Media is in talks to sell itself to Greece-based Antenna Group, which is already a minority shareholder in the company. Vice has been trying to get itself sold for quite sometimes now, in its heydays was valued by VCs at $5.7 billion, and more recently scrapped a deal to go public via SPAC. Other Vice investors includes PE outlets TCV and TPG.

🇮🇹 Italy’s billionaire Della Valle family is planning to de-list luxury shoemaker Tod’s from Milan-based stock exchange and take it private in order to refocus the business, in a deal that values the company at €1.3 billion. The Della Valle family were the initial founders of the company back in the 1920s.

🇷🇺 Ex-Yandex head takes EU to court The former head of Russia’s top tech firm Yandex Tigran Khudaverdyan has challenged sanctions against him over the Ukraine war in a EU court because he "does not support the actions of the Government of the Russian Federation concerning interventions in Ukraine."

🇫🇷 Ubisoft in Chinese hands Tencent is said to be seeking to increase its 5% stake in French game publisher Ubisoft. Ubisoft is valued at $5.3 billion and Tencent aims to become the single largest shareholder of the French company with an additional stake purchase.

🇫🇷 The BPIFrance boss complains that nothing is made in France and talks about how there is need of a national mobilisation in order to maintain the French industrial relevancy. Startupwise, if we're to be honest, the French have advanced considerably compared to Germany and other Euro peers, mainly because of Macron's direct involvement - but on absolute qualitative standards, there's still too few incentives to build a tech startup out of France, with school kids rather becoming consultants and accountants than building stuff on their own.

🇪🇺 European deep tech founders don't think European investors know what deep tech is while the European investors are EVEN LESS convinced that their fellow investors know what it is. That sounds about right. 

👀 Good read on how to build startup hype and growth from a guy who's walked the walk and now has turned into an investor. link

🇧🇬 Building a startup out of a Central Eastern European country is much more difficultthan people would imagine. Alas, still a very disproportionate number of investors are not aware of the untapped potential of the local talent combined with price advantages - I known one Polish investor pitching to LPs as doing nearshoring VC. 

🤖 Amazon is doing consumer robotics now, as it set to acquire maker of Roomba vacuum for roughly $1.7 billion - I wouldn't be surprised to see incorporated into Prime the Roomba subscription that offers automatic equipment replenishment.

🤔 Podcasts are the new fad Forget about becoming rich quickly by building a Linkedin following based on a platitude-infested content strategy, podcast guests are paying up to $50,000 to appear on popular shows. The practice appears particularly popular among wellness, cryptocurrency, and business podcasts. 

😈 Investors about the bearish market:

All the pretenders and the speculators will get wiped out. We’ll have the believers and the builders. 

They say the same things every.single.time in a downturn.


Miscellaneous

🇳🇱 The Dutch tow your bike if you park it badly.

🇮🇸 The Fagradalsfjall volcano erupted again this week 30 kilometres away from Reykjavik, just eight months after its last eruption officially ended. Before that, the Reykjanes Peninsula hadn’t experienced a single eruption in about 800 years.

🤡 Kevin Spacey was ordered to pay House of Cards producers $31 million for the costs involved in removing him from the series following sexual misconduct allegations.

🏈 The average NFL franchise is worth $4.14 billion, up 18% over last year.

⚽ The sports bras that helped Lionesses (the British women soccer team) to winning the Euro 2022 cup could improve performance and help athletes train for longer. If those cups could talk...

🧊 A French mayor says conditions on Mont Blanc are now so dangerous that climbers should pay a €15,000 deposit to cover rescue and possible funeral costs. This happens as a shifting glacier - the Theodul Glacier - has moved the border between Switzerland and Italy, putting the location of an Italian mountain lodge in dispute.

 

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