As I reflect on the state of the macroeconomy and its impact on startups, it’s clear that we’re living in an uncertain and volatile time. Over the last few years, we’ve seen the global economy shift in ways that have far-reaching consequences for both established businesses and early-stage companies.
High inflation, interest rate hikes, supply chain disruptions, geopolitical tensions, tightening budgets, seemingly unending wars, and shifting consumer behaviors have created a challenging environment for all. But for startups, these macroeconomic headwinds present both obstacles and unique opportunities.
At York IE, we work with founders who are navigating this terrain daily. We’re also dealing with it all through our own operating business, and I want to share some insights that can help founders not just survive, but thrive in these volatile times.
Operation Efficiency Combats Inflation and Rising Costs
Inflation is hitting everyone. For startups, rising costs, whether for talent, raw materials, or services, are compressing already thin margins. If you’re an early-stage company burning cash, inflation might be eating into your runway faster than anticipated. It’s tempting to overcompensate with aggressive growth strategies or cut costs without thinking long-term, but you have to strike a delicate balance.
The key here is operational efficiency. Focus on optimizing what you have, whether that’s your product, your team, or your processes. Lean operations, without sacrificing innovation, can help extend your runway while still positioning you for growth when the market rebounds. This pragmatic growth approach – where focus and spending discipline are critical — has become more in vogue than ever.
Investors Are Looking for Profitability and Scalability
Interest rate hikes are cooling off venture capital, plain and simple. Startups that once found it easy to raise capital in an environment of low interest rates are facing a much tougher fundraising landscape.
With capital markets tightening, VCs are becoming more conservative in their investments, placing greater emphasis on sustainable growth over hyper-growth. In turn, valuations have leveled out to a more sane place, but many need to scale into their once-exaggerated multiples.
For founders, that means the days of “growth at all costs” are over. Investors are now more focused on profitability and scalability, and they want to see you execute on your vision without burning through cash recklessly. The fundraising climate is going to be tough, so focus on building a compelling narrative around your path to profitability. Show you can create value in a difficult environment, and you’ll stand out.
This is especially true in B2B SaaS, where we live as operators, advisors, and investors. Do this and you’ll excel.
Flexibility and Culture Can Bolster Your Talent Strategy
While we’re seeing layoffs across various industries, the competition for top talent remains fierce, especially in the tech sector. That paradox makes talent acquisition and retention tricky for startups. All resources need to be aligned today on key business outcomes and every headcount must fit into the “need to have” bucket — not the “nice to have” bucket. Startups that can offer compelling missions, flexibility, and a strong culture will still attract talent, even when salaries can’t match those of larger competitors.
Be intentional with your hiring. Build a team that aligns with your mission and values, and invest in creating a culture where people want to stay. Demand high performance and build an outcomes-based environment. It’s not just about hiring the best talent; it’s about keeping them engaged and aligned with your company’s vision. To do this well, every person on the ship needs to row in the same direction.
Startups Can Stay Nimble and Adapt to the Market
Geopolitical uncertainty and economic slowdowns have impacted consumer confidence, which in turn affects startups that rely on consumer spending. Never-ending wars create market unease. But with these shifts come new opportunities. Consumer behaviors are evolving: remote work, sustainability, digital transformation, and automation are accelerating at a rapid pace. The AI revolution is real. But the technology revolution is also still new in many more traditional industries. This is why we’re so hot on vertical SaaS in B2B.
At York IE, we encourage startups to stay nimble and constantly assess market demand. Are there ways to pivot, iterate, or adjust your offering to better align with what the market is asking for right now? Companies that can adapt their products or services to meet the evolving needs of their customers will have a competitive edge. Moving quickly, while maintaining core value drivers, is why startups can outmaneuver large corporations.
There Is Opportunity Amidst Uncertainty
While the macroeconomy may feel unpredictable, the truth is that many of the world’s most successful companies were born in times of economic uncertainty. There is no better time to be an early-stage seed VC, but it takes guts, resolve, conviction, and a long-game view. LPs need to get comfortable to see outsized gains. Recessions force startups to be scrappy, innovative, and disciplined. The startups that come out of this environment stronger will be those that focus on sustainable growth, build real value, and stay resilient. The same goes for their investors.
As founders, you are always thinking about the long-term. That mindset is your biggest asset right now. Executing within the context and constraints of the macroeconomy is paramount. The economy will rebound, and when it does, the startups that have positioned themselves well during these tough times will be in the best spot to capitalize on new opportunities. The tailwinds are coming.
At York IE, we’re here to support founders through the ups and downs via our Advisory as a Service model, because we know that the challenges we face today are shaping the successes of tomorrow.
Let’s embrace the challenge, and keep building, together.
