Importance of early sustainability, unlimited runway and freedom to pivot
VCs love companies that burn cash in order to grow fast and bring more positive progress as cash gets converted into supposedly bigger assets.
Contrarian to the general belief, I believe it is critical for seed stage companies to achieve early sustainability in order to have enough runway to pivot as much as needed and experiment with different business models, industries and value propositions.
Entrepreneurship is a game of attrition
Almost none of the seed stage startups have the right team, market and product from the get go. Companies go through setbacks as they explore to find the perfect industry and the use case for the technology.
Startups must continuously reinvent the business and pivot to new directions on the basis of feedback from the market.
Started as a mobile best re-engagement time predictor, Botanalytics was fortunate to try different industries before deciding to focus on conversational analytics for bots and customer support.
A pivot requires that the entrepreneur has one foot rooted whether it is product, market or business model, while making fundamental changes in order to seek greater returns. — Ilker Koksal, Botanalytics
Micro failures are prerequisite for the macro success
Pivots are structured as a course correction designed to test new hypothesis on business fundamentals. Businesses are full of such unclarity on every stage and learnings from failures embark the impetus for radical change.
The rapidly changing market conditions create new opportunities, as the company goes through industry and product pivots. Startups increase their chances of finding the killer use case as they go through these twists and turns.
More pivots mean more chances of success…
But most companies cannot sustain long enough
Startups, already in the market for a while, compete to be best positioned to leverage the upcoming big opportunities that emerge as external factors like market maturity, technology readiness and overall problem definition evolve.
However, most entrepreneurs do not have enough cash to see through the challenges, as companies are put in danger of failing. In Silicon Valley terms, if a startup is a bit too early to the market, it needs to have a couple million dollars to survive for a little longer, hoping that the conditions will soon change in favor.
For an entrepreneur, what is more terrifying than having the wrong vision, is the thought that the vision might be deemed wrong without having been given a real chance to prove itself in the right market conditions.
The opportunity cost of working at a technology giant for a six-figure salary, makes it even harder to absorb the risks and stretch to the limits. Even if the entrepreneur is committed and passionate enough to persevere in the face of overwhelming odds, employees start losing faith and doubts start to creep in.
Unlimited runway is our competitive advantage
Most of our portfolio companies have domestic development teams at a fraction of the cost in the US with no employee turnover given the lack of other opportunities in the local market.
Able to get to a sustainable level early on, these companies have unlimited runway and freedom to test out new markets and iterate with the product.
Sinemia, once an unlimited move subscription service, was fortunate to test a variety of subscription models and create a moviegoers social platform with a private membership club, until it hit upon the perfect gross margins and positive unit economics.
Sinemia had numerous product, market and business model iterations, while operating OpEx break-even for almost a year, to find the perfect business case. We had the bandwidth to make many mistakes and fix them along the way — Rifat Oguz, Sinemia
Perseverance, sustainability and pivots are part of our investment thesis
VCs usually push companies to spend money and hope to achieve fast growth, assuming that they’ve invested in the perfect team with a great product at the right time — which most likely isn’t the case at seed stage.
Entrepreneurs with the right team and product are often only a couple steps away from success but unable to sustain any longer due to high burn rates and lack of perseverance that lead to the death of the company.
Founders must strike a mindset in which there are no obstacles to success, only some hiccups along the way but early sustainability is critical in overcoming them and having the freedom to iterate enough times.
Uncertain of how the market dynamics will evolve, our portfolio strategy involves optimizing for early sustainability, especially in blue ocean industries, to make sure that the entrepreneur is best positioned when the right time comes.