#152 - Cleaning Up After The Party

A Guest Post from Super Co-Founder and CEO Lindsay Liu

Hi 👋 - A decade of cheap capital has resulted in lots of questionable business models (see: instant delivery) and valuations (also see: instant delivery). But frugality isn’t a four letter word. Businesses that don’t make money are reliant on the kindness of strangers. Today, a guest post from Super co-founder and CEO (and friend of the show) Lindsay Liu on building a lean startup.

Super ​is a software startup building the operating system for buildings. You can learn more about it at hiresuper.com.

As always, thanks for reading. 

The Hangover

The “tech hangover” is an apt description for the post-pandemic fueled comedown hitting tech companies. The party is officially over—and for some, the tap’s run dry—as 2022 tech layoffs surpass 150,000 across companies at all stages, including the once-invincible FAANG group.

Leadership didn’t think the binging would stop, and so they based their business and growth strategies on it: let the good times roll. But the music stopped, as Stripe CEO Patrick Collison acknowledged in an open letter regarding its recent layoff:

We were much too optimistic about the internet economy’s near-term growth in 2022 and 2023 and underestimated both the likelihood and impact of a broader slowdown.

But this description of tech leaders (and their investors) as guests suffering the headache of a party gone out of control feels…too easy. As a founder of the early-stage proptech startup Super, and someone who has built a career on taking responsibility for driving tech company growth, I have a different perspective.

Yes, these are unusual times between war, inflation, and interest rate hikes. Yes, many factors are entirely outside of the control of executive teams. But we are no strangers to unusual times influenced by outside factors. After all, Covid-19 lockdowns first began less than three years ago—and tech companies were happy to take credit for figuring out how to ride that tailwind.

So, under the hood, what’s causing these upheavals?

Back To Basics

So much of tech hype is focused on the wrong metrics. My co-founder, Vika Kovalchuk Zamparelli, spent eight years building product in big tech, and together we have a strong—perhaps even dogmatic—point of view on what we call vanity metrics. They are a distraction, and they do not mean you have a strong business or good product. Up and to the right makes for a nice slide, but it’s often an incomplete story. Because so much of the betting on tech companies is based on potential, metrics such as headcount, amount raised, and valuation have been overemphasized as proxies for success. PR about fundraising and unicorn lists replaced business outcomes.

Then there are the metrics that do matter, but are often misconstrued and decontextualized. Revenue and growth rate are very important. But those numbers on their own only tell you part of the story. I can have 10x revenue growth, but what is the quality and sustainability of that growth? To quote Trina Spears, CEO of FIGS from a past Below the Line:

Funding Facebook and Google all day or Meta and Google all day is not the right way to build a brand.

Turns out, it’s not a sustainable way to build a business either.

So what should companies be paying attention to? The answers are going to feel like what I imagine must be covered in a beginner’s business class. Fundamentals! Because so many companies have been distracted by vanity metrics, when the beat died down, so did the rate of fundraising.

Blitzscaling has been made to look sexy by the many headlines and TV shows about this approach, but what’s truly sexy? Health profit margins. I know, I’m the buzzkill, but you can’t look at revenue growth in a vacuum. Ikea founder Ingvar Kampra— a man with no use for vanity metrics—has an excellent perspective on this¹:

Time after time, we have proved that we can get good results with small means or very limited resources. Wasting resources is a mortal sin. It is hardly an art to reach set targets if you do not have to count the cost. Any architect can design a desk that will cost $5,000, but only the most highly skilled can design a good functional desk that will cost $100. Expensive solutions to any kind of problem are usually the work of mediocrity.

Profit margins force you to focus on metrics like your cost of customer acquisition, repeat purchase or retention, and burn rate. When companies grow in headcount, burn rate goes up—even if revenue doesn’t. One look no further than the case study of Fast, where the company was burning an estimated $10 million a month with just $600k ARR—leading to its shut down just one year after raising a $102 million Series B. Growth at all costs has a very real cost, and when capital is no longer free-flowing, companies taking that approach won’t have enough runway to even attempt to course correct.

Improving The Odds

Startup success can feel mythical at times. And there are hundreds of factors that influence outcomes. But there are also known factors that significantly increase your chances of success.

First, find a really painful problem that affects a lot of people (or find a big TAM as finance folks like to say). Second, build in a lean way, and continually test and iterate to a solution. These things—solving a painful enough problem, and being lean—are not just advantages, I’d argue they are prerequisites in 2022-2023. 

In a tough economy, if you don’t solve a painful enough problem, good luck getting people to open their wallets for you. As strong as your brand and lead gen tactics may be—the funnel will always be leaky if it comes down to spending money on your product, which solves a mild annoyance, versus something deemed essential (like rising rent costs). I predict we will see a lot of DTC brands work through this challenge in the coming year. 

In a tough environment requiring more pivots and experimentation, operational overhead isn’t just costly, that bloat slows you down. Many companies shifted stages too quickly from the desirable startup speedboat to the tanker they once set out to disrupt. This may be one reason for the volume of layoffs as compared to pay cuts or compensation adjustments.

A Long Cleanup

If 2022’s pandemic party cleanup involved clearing out the house, 2023 may look like repairing structural damage to the house and reinforcing its foundation. Rehabbing isn’t easy. It’s going to be messy for a while. Missing from this analogy are the thousands of people who have lost jobs and livelihoods as a result of this mismanagement.

Many companies, once flush with easy capital, scaled up rapidly—creating an ultra-competitive talent market with historically high compensation—and are now faced with the difficult consequences on both burn rate and agility.

For those of us just starting to lay our foundations, these are valuable, hard-taught lessons. Sometimes, being basic isn’t so bad.

Connect with Super

If you're interested in upgrading your building management's tech stack, check us out at hiresuper.com or connect with Lindsay on LinkedIn.

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Photo by Crystal de Passillé-Chabot on Unsplash

1. Founders Podcast, Ingvar Kamprad: The IKEA Story, December 19, 2019.