Killing the firstborn.

2023 initiated a shift in paradigm across the startup industry in particular. With a sharp increase in interest rates following a decade-long period of cheap money and the subsequent deflation of valuations that had benefited from a ballooning trend, funding suddenly became scarcer, and early stage investors started to shift focus from investing in new rounds to taking care of their portfolio companies whilst dust was still settling.

As in any transitory phase, those who can read this evolving environment and actively adapt are more likely to strive during the next phase. And time is of the essence.

With capital less easily available, or in other words, more expensive, the focus has quickly shifted towards the path to profitability and capital efficiency, with positive EBITDA being the new grail.

For a lot of companies, 2024 will be the year where you start to harvest the fruits of difficult decisions, as a result of some thorough strategic thinking answering key fundamental questions.

Looking at unit economics, can we make it work?

Looking at the simplest level, pure unit economics, can we make it work? In other words, I know how much we sell our product; I can reasonably assume how much it costs to produce and to sell. Even if it’s not current actual numbers, using realistic assumptions for the foreseeable future, can we ensure that we are not digging a bottomless pit?

One of the main pitfalls of having too much money at hand is that it becomes more and more difficult to remain scrappy for longer. As a result, acquisition costs inevitably increase and usually so does the size of the team.

Once we have established that our product is definitely worth selling, with clear customer acquisition costs and a healthy yet realistic gross margin, we also want to be realistic about our growth trajectory. Hypergrowth fueled by hyper-CAC is no longer on the table.

Are there unidentified pockets of growth we should go after?

Are there market areas we have not yet looked at (B2B vs. B2C, new verticals, new segments…)? Are there acquisition channels we have not yet leveraged, either direct or indirect, including strategic partnerships?

From a product perspective, it is worth assessing whether what has been built can be adapted to address new segments of demand and at what cost.

Of course, at a time when there is a heavy constraint on resources, it is key to manage focus and avoid wandering too far off our turf without careful consideration.

The challenge here is to ensure we uncover new pockets of growth whilst prioritising higher margin pockets.

Challenging your cost base, do we really need all this?

What are the costs that are true must-haves, nice-to-haves, simple laziness, or even pure luxury? We need to thoroughly go through an exhaustive cost review to understand in detail what are the key items we could cut into.

Of course, most founders know at all times what their cost structure is… 

Looking at the cost structure with one goal in mind — slashing into it by 20, 30, 50% — is a whole different ball game.

Some of those subscriptions are not detrimental to our day-to-day, of course. More importantly, you will realise some people also fall into the nice-to-have bucket. 

Where should our focus remain?

We are talking about opening new acquisition channels and deploying strategic partnerships that may require sales efforts. We are talking about exploring new segments and potential adjacent verticals, which may require product development. In the meantime, we are conducting a potentially heavy streamlining of our cost structure, including a most certain impact on our team.

It’s easy to get lost.

Focus is of the essence, also. From a product, and therefore, market perspective is it key to define what is out of reach, and what is an acceptable stretch, also considering the growth and gross margin perspective. Most companies’ history includes a fascinating product history. It’s actually fairly rare to see a company that has never iterated or even wandered off track from a product perspective. And this natural iterative process can create some legacy being built over the years, from simple features that are no longer useful, to fully-fledged independent products that are no longer relevant to the company. Killing your firstborn might be necessary.

Back in 2020, we created Sharelock to massively unlock bicycle usage, observing another shift in paradigm, the bicycle transitioning from a simple leisure activity to a fully-fledged daily transportation mode, with bicycles becoming more and more electric and more and more expensive. We noticed that the fear of theft was a major obstacle to bicycle usage. We created a hardware solution, the first shared lock in the world, which we produced, deployed, operated, and even patented. In the process, we identified bicycle insurance as a powerful lever to bring peace of mind to urban cyclers and unlock usage.

In May 2023 we launched a fundraising process. Within three weeks, in the midst of the bubble bursting and, among others, the Luko debacle, it was clear this timing was not favourable, to say the least.

We swiftly took a step back, it was clear that we had a massive opportunity ahead of us, with a disruptive insurance product quickly becoming a reference on a new insurance segment, also showing strong traction and healthy unit economics.

The overarching strategic question we asked ourselves in June 2023 was simple: what do we need to do to break even without fundraising?

By July, we were already setting in motion an ambitious plan involving an accelerated pivot away from our original hardware activity (the firstborn mentioned above), aggressive cuts in our costs, including laying off 40% of our team and setting in motion a clear acceleration on the B2B front on the insurance to complete our product suite and tackle a whole new side of the market.

By October, we had delivered on our plan and had divided our monthly burn by 2.2x, which, completed with thorough work on cash flow optimisation, should allow us to break even before the end of 2024.

Overall, I realised that this was also a unique opportunity to up the level of our broader team and consolidate our company culture. By working in full transparency with the team, we enhanced trust as well as a clear understanding of the fundamental reasons we needed to take this turn.

On a personal level, I must say if this was one of the toughest parts of my journey as an entrepreneur, it has been most definitely the most exciting and the most rewarding to date.