Dear Reader,
Welcome to the 38th edition of the good reads newsletter by Malpani Ventures. Sharing your weekly dose of articles for this weekend’s reading!
2023: Year of Customer Success & Gross Churn
Churn is the loss of customers over a given period of time and can have significant negative impacts on a company's revenue. The impact of churn goes beyond just the lost revenue from churned customers, as it also includes lost expansion opportunities and second-order revenue. It is important for SaaS companies to prioritize customer retention in order to maximize the value of their customer base. Effective customer success efforts, such as providing high-quality customer support and continuously improving the product, can help minimize churn. In a challenging economic environment, minimizing churn maybe even more important in helping companies retain their customers and weather the headwinds.
Fighting Envelopment Strategies: What To Do When A Larger Company Tries to Absorb Your Category
https://kellblog.com/2023/01/01/fighting-envelopment-strategies-when-and-how-to-don-your-startup-coyote-vest/
Now that the era of cheap capital is over and a ton of companies are fighting to survive, those with deep pockets will now try to consolidate the industry - who will stop them? The article suggests some key points to consider when a larger company is attempting to expand into your category:
Determine whether your category is one of the top strategic components in the larger company's broader vision. If your category is a top strategic component, consider partnerships or acquisitions as a way to stay competitive. If your category is not a top strategic component, try to build a substantial company in the period before the larger company expands into your space
Find ways to differentiate and defend your space from the larger company's encroachment. Look for other areas where the larger company may be vulnerable and attempt to exploit those vulnerabilities
Consider the resources and capabilities that the larger company brings to the table and how they may impact your business
Determine whether your company's business model is more aligned with the larger company's goals and objectives. Assess the potential risks and rewards of a partnership or acquisition with the larger company
Consider the impact that the larger company's expansion into your category will have on your customers and how you can address any concerns they may have. Think about the long-term sustainability of your company's business in the face of the larger company's envelopment strategy
What Will Happen In 2023
https://avc.com/2023/01/what-will-happen-in-2023/
Fred Wilson from USV on his blog AVC writes about his thoughts on 2023
Central banks around the world will start to ease tightening measures in the first half of 2023 due to easing inflation and a cooling economy.
There may be a "soft landing" or mild recession in 2023.
The largest tech companies will emerge from this downturn leaner and more profitable, but growing more slowly.
Startups will have a difficult year in 2023 as there will be a glut of companies seeking funding and VCs will be more selective. Good businesses with positive unit economics and strong leadership teams will still be able to raise capital at the "new normal" valuations.
Many startups that have not found product market fit or created positive unit economics will struggle to raise capital and may fail.
Climate tech will see more investment and progress as the world continues to focus on reducing carbon emissions.
2023 will be a challenging year, but one that will lead to a stronger and more sustainable tech industry in the long run.
Looking for value in new-age companies
https://www.morningstar.in/posts/72124/looking-for-value-in-new-age-companies.aspx
The main challenge in valuing early-stage companies is uncertainty. To address this, it is important to look for value in new-age companies by considering unit economics, revenue per customer, contribution margin per unit, the addressable market, competitive dynamics, and multiples. It is also important to consider whether a company has established a large customer base, whether it has a scalable business model, and whether the company has built a product that is very difficult to replicate.
Our diligence process - Mandatory plug :p
Considering we’re at the point of looking for value in new-age companies, we thought it will be a good measure to share what we look for in early-stage companies while evaluating them.
Until next week!