Forward from Miller Center…
In January, we had the pleasure of hosting long-time Miller Center mentor Bret Waters for an event in our office. He spoke to a packed house of Santa Clara University students, faculty, and staff about his new book, The Launch Path, and shared invaluable insights about launching a successful venture. After a long Silicon Valley career as an entrepreneur and executive, Bret settled into a new passion: supporting new entrepreneurs. We’re excited to share his New Year’s blog here.
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For startup founders and their investors, 2024 is a whole new enchilada. Last year marked the end of a decade-long run of crazy market conditions, the end of ZIRP, and we’re now in the new normal. Here’s my list of trends to be aware of as we enter this new era.
Eggs are shipped by the dozen, and so is this list. Note that this is not a dozen “technology trends” (you can find plenty of those elsewhere). This list is about the new operating environment for entrepreneurs and how it may affect success strategies for startup founders, innovators, and investors.
- Capital light is the overarching trend for 2024. The entire venture capital industry is in retrenching mode. Pitchbook reports that over a third of all VC firms went dormant in recent months, and the numbers are pretty stark: In 2022, VC firms created 1300 funds raising $160B, and a year later, it was 311 funds raising $40B. And it’s not just that the cost and availability of capital has dramatically changed, it’s also that there’s growing evidence that startup outcomes are better with a capital-light approach. As Sam Lessin has written, the era of the factory-farmed VC unicorn is over. In 2024, startups that embrace capital light are more likely to win.
- Startups with 2021 cap tables will be collapsing all around us. Roughly 1,200 private companies will exhaust their financial reserves by the end of 2024. Some will be bought for parts by new private equity firms that specialize in this, and some will be subject to acquihires dressed up as M&A transactions, as VC try to prop up their portfolios without down rounds. For new startups in 2024, this will create opportunities to come in where over-funded pandemic-era ventures failed.
- Increasing regulatory scrutiny makes life difficult for the tech giants. In the US, FTC commissioner Lina Khan has been on a mission to suppress monopoly power, as her agency has blocked several large M&A transactions. The CMA in the EU and UK also are increasingly uncomfortable with the market power of the global tech companies. Meanwhile, the recent court ruling against Google in the Epic case will have wide ramifications on the tolls charged by digital gatekeepers (including Apple). All of this is bad for the giants but opens up a wealth of new opportunities for entrepreneurs and innovators in 2024.
- It’s a whole new global landscape. Last year, India surpassed China in population and is now headed toward the #4 spot in the list of global economies. China, which led the way for the past two decades, now has some demographic and economic problems, and the Biden Administration has been busy issuing executive orders that restrict investments into and out of China. Meanwhile, there are emerging unicorns across Latin America, the Baltics, and the Middle East. All of this means that it’s a completely different global landscape than it was a decade ago.
- There’s a 5-person unicorn somewhere on the horizon. An operation that once required a team of 50 can today be one founder on a laptop. Your marketing department is HubSpot and Canva, your finance department is Airtable and Xero, your integration engineer is Zapier, and your design team is Figma. Imagine being able to run a company with 5x the agility and a 10x reduction in payroll. Welcome to 2024.
- Sales automation moves to the next level. Most of what a traditional sales team does is identifying prospects, reaching out, following up, answering questions, and sending additional information. That can largely be automated today, which can pretty dramatically change CAC for many startups. Twenty years ago, AWS completely changed the infrastructure business by taking something that was once sold by an expensive, slow direct sales team and turning it into something that could be sold with a low-friction self-serve sales process. We will see additional sectors transformed by sales automation with the new tools available today.
- The productivity of one engineer building software products goes up by 5x. Github Copilot and other gen-AI engines are completely changing how code writing and code refactoring happen. Four years ago I wrote a piece called The Rise of the Stack Stitcher, and in 2024 a good engineer can develop an entire new application in record time by spending less time writing code and more time stitching together existing code. All of this drives the trend toward decentralized engineering resources, which allow teams to move faster and be more empowered. Having marketing dependent on engineering in order to run an A/B test, for example, is now dinosaur behavior.
- Cross-cultural leadership becomes a critical skill for startup founders. The most successful startups today have diverse teams from diverse cultures, often living in diverse geographies. It once was that it was a total deal-killer to tell an investor that your CTO was in Poland, your CMO was in Mexico, your ops team was in India, while you work out of an Airbnb in Sonoma. Today, that’s considered normal. But this means the skills required for cross-cultural leadership of a remote team are absolutely essential (and not everyone has them).
- Good governance is a good idea. If you look at the most well-publicized startup disasters in 2023 — SVB, FTX, and OpenAI — they were mostly all due to bad governance structures. 2024 will see a return to good governance practices. Investors will insist on it, and founders should embrace it.
- Moats and network effects become harder to come by in this new era. This is an important trend. It once was that raising $100M from a16z provided a moat, but that ain’t happening in 2024. It once was that proprietary technology developed by your 100-person engineering team was a moat, but now your engineering team is 3-guys stitching together open source and gen-AI code. It once was that investors would fund your plan to just buy a million users in order to get the flywheel going, but that ain’t happening no more. Without moats and network effects, building a successful new venture requires startup founders to be more agile and more creative. Your moat is much more likely to be the unique relationship you have with your customers.
- The startup world becomes more place-agnostic than ever. It once was that a tech startup needed to be in Silicon Valley. This is where the capital, talent, and connections were. Today, Zapier (valued at $5 billion), was founded in Missouri and is operated as an all-remote company with 500 employees spread across 38 countries. Startups in Latin America are raising money from Sand Hill Road investors. Startups in Estonia are launching in the North American market. In 2024, opportunity becomes place-agnostic.
- All software becomes “smart”. We’re in the middle of a huge hype cycle for AI, obviously, but moving forward, users will simply expect all software to be smart, and the new AI engines will become platforms that allow entrepreneurs to bring new smart software applications to market quickly. Meanwhile, AI-on-a-chip will create a whole new generation of smart devices across many sectors. AI is an overblown trend entering 2024, but it will become the underlying platform that drives the big new wave (just as social, mobile, and web were the platforms that drove the previous three waves).
And the one key thing for startup founders in 2024? Storytelling skills matter more than ever. Storytelling skills are the key to fundraising in a difficult market. They are necessary for recruiting and managing small-but-mighty teams. Developing successful products requires writing user stories that accurately reflect what customers care about. Attracting and keeping loyal customers is about storytelling skills. Storytelling matters, more than ever. It is the one indispensable skill for entrepreneurs and innovators.
That’s it. Here’s to a great 2024 ahead, for all of us.
