Startup Musings #4: Efficient growth is the new normal for B2B companies

The past two years were fairly easy for fundraising; by extension, they were like the wild west of spending. Startups had the money to spend. So we saw growth inflation across the board as more and more companies benefited. What we’re seeing now is a market correction.
Business-to-business companies, especially B2B software as a service companies, have been the subject of stories about the negative effects of the “growth at all costs” growth model. This is especially true right now, as news stories about layoffs from high-growth companies are coming out every day. Crunchbase reports that, as of early October, more than 42,000 U.S. tech workers have been affected by massive layoffs in 2022.
These mass layoffs highlight an important learning opportunity for B2B leaders: Efficient growth is the best path forward. Without an efficient growth mindset, B2B tech companies could be stuck in a cycle of hiring and firing employees, slashing and increasing budgets, and creating more challenges for teams to meet their aggressive growth goals.
Where leadership had been planning for a future where growth would be easy, they are now having to take a step back to evaluate. Companies’ success this year will largely depend on adopting an efficient growth mindset.
Efficient growth is a simple concept. It relies on two main components:
The truth is, some companies invest so much in growth quickly that they have to raise money to keep going. And when they can’t, or run out of cash runway, they start slashing budgets and rosters. This raises an important question that founders, including myself, must answer: Is the company growing in such a way that it needs to raise money to survive? If yes, that is not efficient growth.
As a co-founder and CEO, I understand the struggle of starting and growing an early-stage startup. From the beginning, we adopted the mindset that we would always strive to survive within our means. Growth shouldn’t rely on a raise, but a raise can be used to accelerate growth. The efficient growth mindset exists somewhere in the middle of bootstrapping a company and raising a lot of funds.
Which metrics should leaders track to make sure they are on track for efficient growth? For me, it’s very straightforward. Our company aims for a burn multiple of one, which means that it costs the company a net burn of $1 to generate $1. However, there are other indicators that show whether you’re on a path of efficient growth that companies can evaluate.
However you decide to track efficient growth, the goal is clear: getting back to efficient growth that is sustainable for the company, its employees, and its investors.
After a successful fundraising round, the adrenaline high and external expectations often get leadership teams to think about growth at all costs. In fact, many startups have fallen into this trap and ended up having to make significant cutbacks on their budgets and growth goals. This is a hard lesson to learn.
When our company achieved a Series A raise, we were determined to keep pursuing high growth but always kept our eyes on efficiency. So, how did we maintain this efficient growth mindset after a big raise?
If the past two years were all about growth at all costs, the next two will be about efficient growth. Companies will be “going on a diet” to get leaner and more productive while focusing on delivering true value to customers.
Obviously, there is no perfect formula for growing a startup, and I don’t claim to have all of the answers. However, the approach I’ve outlined has helped my team grow through a funding round and economic downturn. Adopting an efficient growth mindset has allowed us to keep our eyes on the prize for long-term growth.