[Founder’s Real Talk #20] Default alive and race to the bottom

The economic downturn has dragged on for almost a year. And the layoff is getting worse and worse. More and more investors have been pushing their portfolio companies to extend their runway — from ~1yr to 2 years, and sometimes to 3 years.

The sentiment has changed from “default investible” to “default alive”.

This is hurting creativity and innovation for a lot of startups. When raising their Seed & A rounds, investors were pushing them to think hard about why they are different from their competitors and what innovation they can bring.

But now, to “default alive”, they need to be conservative and cut a lot of R&D that seems too long-shot and revert to things that sell well. Of course standardized things are easy to sell, and more intuitive products & services are easy to sell. But that takes away the efforts that would have been invested to educate and change your client’s mindset and buy in to something new and innovative.

SaaS companies are no longer competing on product features (partly because all competitors are catching up on product features already), and instead are competing on price. Many are willing to lower prices to 1/2 or 1/3 just to ward off competitors. It’s a race to the bottom.

This could be the best time for managers, or professional executives who are better at optimizing for sales and costs, but the worst time for innovators, or creative minds that are always thinking about building something new and different.

But on the flip side, if you are a creative mind, this might be the best time for you to learn how to manage a business, so that next time when your investors question your “professional capability” to manage, you have something to prove yourself :)