Lessons From 2022, Strategies For 2023: Preparing Your Startups For Sustainable Growth | Vietcetera
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Feb 07, 2023

Lessons From 2022, Strategies For 2023: Preparing Your Startups For Sustainable Growth

A controlled growth strategy can be the perfect fit for your startups at some critical points in 2023.
Lessons From 2022, Strategies For 2023: Preparing Your Startups For Sustainable Growth

Source: Pexels

Amid the market instability with interest rate hikes and the risk of an economic recession, even unicorn startups have struggled to grow and thrive.

The year 2022 came to an end with many worthwhile lessons. I spent some time reflecting on those which can be helpful to the Vietnam startup ecosystem in 2023.

2022 and severe corrections in the financial market

2021 was a robust year for the Vietnam startup ecosystem, with the total capital raised by Vietnamese startups marking a record of more than $1.3 billion. Dazzled by the achievements, they headed into 2022 with hopes and optimism.

However, 2022 turned out to be a different story.

Vietnam’s startup ecosystem welcomed plenty of new investors in 2022 who may have yet to understand the market thoroughly but actively played the game. If they quickly jumped to invest in a startup with an unrealistically sky-high valuation, it signaled that the market was at its peak and all must stay prepared for a correction.

Investors’ unexpected u-turns last year shook up both the financial market and the startup ecosystem, causing a plummet in the stock price of many tech companies worldwide and increasing the challenge for startups on the road to raising funds.

The market turbulence happened due to inflation, geopolitical tensions, and economic recession.

Inflation and the interest rate spikes left in its wake have placed businesses in a predicament and threatened their growth as they could hardly access cheap capital as opposed to earlier years.

Source: Pexels

Besides, geopolitical tensions have disrupted the supply chain, triggered an energy crisis, and halted international trade.

Meanwhile, the risk of a global economic recession has caused a downturn in revenues and profits. When consumers tighten their belts, businesses and investors can’t help but face a gloomy outlook.

2022 and significant changes to survive

The macro-market turbulence has forced startups to adapt to stay in the game by making fundamental, transformative changes in their mindsets and business operations.

First, startups should shift their focus from blitz scaling to fit scaling, aiming at sustainable qualitative development.

When it becomes more challenging to raise external funding, startups must utilize their internal resources to secure their existence, including optimizing cost-efficiency and diversifying their incomes to protect their cash flow.

They should focus on improving their products and creating values that satisfy their customers and convince them to return instead of prioritizing customer acquisition or vanity metrics to earn a high valuation from investors as they did in the old days when cheap capital was available.

Besides, startups should focus on sustainable business models and qualitative development regarding optimizing unit economics, increasing capital efficiency, achieving product-market fit, and raising profit margins.

These are what it takes for startups to achieve their North Star Metric (the indicator reflecting the core value their product delivers to customers) during this uncertain time, that is, to secure profitability.

2022 and lessons on discipline

The fall of many high-profile startups in the country, region, and worldwide in 2022 sent shockwaves through the entire startup ecosystem.

Propzy, a Ho Chi Minh City-based proptech startup, announced its shutdown in mid-September despite raising $37 million after three funding rounds from prominent venture capital firms, such as Gaw Capital Partners and SoftBank Ventures Asia.

According to Propzy’s founder, their inability to raise funding amidst an uncertain global environment was the final jab of the knife in their young startup.

However, an in-depth analysis of their closure revealed some fatal mistakes, including ineffective cash flow management and premature scaling when they massively expanded to different business services without achieving product-market fit.

Meanwhile, Zilingo, a Singapore-based fashion technology startup, decided to suspend its founder and CEO Ankiti Bose last March after receiving complaints about financial irregularities. As of then, the startup received a total of $310 million from some of the highest-profile investment companies in the region, including Temasek and Sequoia Capital India.

However, the company has yet to file annual financial statements for two consecutive years, a fundamental requirement for all startups, including those at early stages.

On the other hand, the FTX disaster may be deemed the worst failure in 2022, with unacceptable mistakes causing a crisis of confidence among venture capitalists.

Many investigations uncovered its complete failure of corporate controls at every level and a lack of trustworthy financial statements.

Source: Pexels

Even worse, U.S. Securities And Exchange Commission (SEC) charged FTX’s founder Sam Bankman-Fried with using customers’ funds at Alameda to make undisclosed venture investments, lavish real estate purchases, and large political donations.

Startup’s implosion, as in the case of FTX, has left behind many valuable lessons on discipline for the startup ecosystem.

For startups, in addition to a long-term sustainable development vision, ethical and financial discipline is foundational and indispensable to any business that wants to survive and thrive.

Meanwhile, venture capitalists should be more disciplined with their investments. It’s time to be upfront about problematic practices during the past year to foster a healthier investment environment in 2023.

The fear of missing out on investment opportunities in the context of cheap capital has tempted many investors to quickly shell out big bucks for supposedly “hot” startups without conducting due diligence.

On the other hand, the startup investor world also operates on a foundation of trust that shapes the referral culture, where investors mutually introduce potential projects.

Besides, early-stage startups often lack access to accurate and sufficient information. Therefore, venture capitalists have opted for lax due diligence when making an investment decision.

2023 and the awakening from the unicorn dream

A unicorn symbolizes a business with a valuation of $1 billion or more, a favorite pursuit of many startups and venture capitalists. However, it’s time to reinterpret the unicorn dream.

We should facilitate ambitious dreams to soar high while having our feet on the ground. It is essential to have a proper handle on the basic definition of a startup.

Source: Pexels

A startup is a high-growth, scalable business that focuses on continuous growth and has alternative exit strategies for all shareholders, such as an M&A deal or an IPO. Unfortunately, exit strategies have remained the bottleneck for the Vietnamese startup ecosystem till now.

Does it make sense to become a unicorn startup without making a profit and having no meaningful exit for its shareholders? Is there an exit option if a unicorn startup achieves a sky-high valuation for an M&A or an IPO without satisfying strict financial regulations for listing on the Vietnam stock exchange, or even if it is eligible for an IPO, how can the company secure its previous round valuation?

For now, we should redefine a unicorn with a more practical approach that steers startups toward sustainable growth and suits the Vietnamese market. Specifically, it’s a startup that turns a profit.

Otherwise, becoming a unicorn is not the only way. Startups can focus on making profits, conducting an IPO, and gradually becoming a public company with a billion-dollar capitalization to establish themselves as a unicorn in the investors’ eyes.

2023 and expectations of more sustainable and controlled growth

Startups are heading into 2023 with an even more challenging outlook because interest rates can soar higher and cheap capital is no longer available while the risk of a global economic recession can threaten their profits.

On the bright side, the instability of 2022 has taught startups many worthwhile lessons, laying the foundation for essential changes in their sustainable growth mindset, adaptability, value orientation, and disciplined business management.

Source: Pexels

Startups should flexibly implement the controlled growth strategy at some critical points in 2023.

A controlled growth mindset is a healthy discipline to protect startups against possible dangers from unpredictable market fluctuations or deflationary spirals.

This strategy helps startups focus on solidifying their internal power, thereby sustainably accelerating their growth flywheel with accumulated values over time.

To do so, startups need to improve their products and continuously create value for their customers while cultivating a strong team, a clear business vision, and an inspiring organizational culture that fuels employees’ dedication and contribution.