It is increasingly apparent that inflationary pressures and supply chain issues will not abate any time soon, creating a very chaotic decade for the macro economic environment as well as the startup ecosystem. One question that has not surfaced at the moment but may depend on how the economic rollercoaster sorts itself out is whether the composition of new startups will change. In other words, if the economic downturn is as severe as some have predicted, could we see more enterprise startups versus consumer startups?
We are still in the early stages of an economic retrenchment. How severe and how long it will last remains to be seen. What can be stated is that there are an innumerable number of factors colliding to cause this economic downturn. So many in fact that it is unprecedented.
There are the ongoing COVID effects whether it is inflationary pressures due to processes unable to keep up with demand from countries opening up or supply chain constraints due to countries remaining locked down. The conflict in Ukraine that is roiling the geopolitical landscape is also contributing to economic instability. These factors combined with the continuing dynamism in the overall processes and system that make up economic, political and social norms, it is quite apparent that the world we know is potentially on the cusp of permanent and dramatic change.
What does this mean for the startup ecosystem? No one truly knows for sure but there are some guesses that can be made based on the current economic conditions that the startup ecosystem is facing. One is that the mix of startups will more than likely change in the near future from consumer-oriented to enterprise-oriented.
There are a number of factors that drive this transition and many are tied directly to the social, political and economic changes outlined above. It is increasingly apparent that these factors will more than likely negatively impact the receptive consumer attitudes that a number of emerging startups rely on for growth.
The most obvious negative impact on consumers lately are the economic ones. While the current focus are the supply chain constraints and the inflationary pressures that have lead to rising prices, there are longer term economic ramifications that are impacting the ability of consumers to hold up the economy. The hollowing out of the middle class as well as increasing automation has reduced the number of stable well paying jobs available to the global economy. As such, it is not only the overall current and future size of the economy at stake but the willingness of individual consumers to try new and innovative products, services and even business models.
With the latest economic downturn as well the geopolitical situation around the globe, this is clearly becoming a trend. Whether one is talking about crypto or the metaverse, there is general skepticism amongst the general public as to the value and the benefit of these new technologies and their associated business models.
While there are a number who would argue that it boils down to poor public relations on the part of crypto enthusiasts and negative media perception, there seems to be something more that is occurring. Whether one attributes it to the growing “techlash” that is occurring or an overall malaise concerning the fundamental and, at times, cataclysmic change that is occurring, the reality is that startups may have a harder time convincing individual consumers to try new concepts in the future.
If this is the case, what does this mean for startups? For consumer oriented startups, it may mean that they need to not only adjust their growth expectations but also their business models as well. The size and speed at which consumer oriented startups may be able to capture their total addressable market (TAM) may be significantly smaller and slower than what was expected in the golden age of startups just a few months ago. Both founders and investors may need to adjust to having to take a more “workman-like” approach to growing their startups and dramatically scale back their expectations for “unicorn” valuation status.
With consumer oriented startups having to adjust their expectations, what does this mean for enterprise startups? In many respects, enterprise startups are well positioned to take advantage of this transition in the startup ecosystem.
Enterprise startups are used to long and laborious development and sales cycles thanks to the rigorous vetting and validation processes most corporate clients require of their vendors and partners. These sales cycles which can take between 12 to 18 months are on top of the high level of development standards that enterprise startups have to meet on behalf of their clients. Whether it is achieving international security standards for their applications or being able to manage the various data privacy regulations demanded by different jurisdictions, enterprise startup development isn’t an easy task.
With the level of rigor and thoroughness expected by the customers of enterprise startups, there is an opportunity for enterprise startups to attract more talent as individuals look to acquire new skills in a startup ecosystem that is in the midst of dramatic upheaval. It is not only from a resourcing perspective, both financial and non-financial, that enterprise startups may benefit but from an overall growth perspective as well.
With a global economy potentially entering an economic downturn, individuals, corporations and governments are moving towards more “traditional” forms of economic management and growth. What that means is more emphasis on cost optimization and containment as well as improving overall efficiencies and time to market. As such, enterprise startups that focus on “traditional” forms of economic management and growth will have not only increased customer interest but investor interest as well.
At the end of the day, the startup ecosystem is entering a period of dynamic flux that may be beneficial for enterprise startups. It is an environment where slower innovation and adoption may be the future for the entire startup ecosystem, one that enterprise startups may be primed to exploit.
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