Constraints inspire creativity: How to build a massive business in a mediocre economy
I’m confident that 2024 is going to be a great year for early stage founders, and I’m particularly excited to be investing in seed stage businesses. While I’m certainly not the first VC to point out the pattern of great companies that were founded during recessionary markets, I want to share a bit about why I’m optimistic about this year. In short: constraints.
While economic pundits continue to debate whether 2024 is more likely to be a bear vs bull market, it’s clear that for early stage venture capital, we are on the other side of the pandemic-era boom that led VCs to write checks with abandon and growth-stage companies to rapidly accelerate hiring and SaaS spend. While it will require a change in thinking and behavior, this is net positive for all parties involved.
Constraints inspire creativity
I started my career at Twitter, where we were often reminded of co-founder Biz Stone’s mantra: “constraints inspire creativity.” Twitter was spun out of a podcasting startup called Odeo, which got started shortly before Apple introduced iTunes. Faced with existential risk, then-CEO Evan Williams tasked the early team with sprinting for several weeks on alternative side projects that could replace the initial Odeo concept. One of them was an SMS-based blogging tool called twttr (if memory serves, the vowelless name was due to the fact that twitter.com was owned by an amateur birdwatcher and was deemed too expensive to purchase).
This attitude toward constraints applied to many other facets of Twitter culture. A tweet itself was initially 140 characters. This was due to SMS limits and had the effect of forcing users to be as precise as possible, creating a new cultural norm around communication. Hack Weeks — where small teams were constrained by both time and cost — were a regular occurrence in the company and led to several highly successful product launches. A fun personal fact: My husband and I met while joining forces with a few of our engineer friends to form a (winning 😉) Hack Week team that built the first version of Twitter’s Mobile App Install product.
Reversing backward economics
In the current market, with fewer companies getting funded and customer budgets getting tighter, constraints abound. Founders are forced to focus on unit economics and business fundamentals from the beginning. In the recent bull market, companies went years — in some cases a decade or more — with backward economics. They continued to raise round after round of insane amounts of capital in the hopes that someday they would figure out a sustainable model. That’s just not the case anymore. Companies are discovering they need a business model that truly works much earlier, which is better for everyone involved: founders, employees, investors, customers.
As a founder, creating a basic version of an operating model early on is wise. In 2020–2022, when seed rounds often took place in a matter of days with not so much as a pitch deck involved, I very rarely saw a breakdown of unit economics or a financial model. Thankfully, that’s changing. While I don’t think it’s productive for most seed-stage companies to spend days building a private equity-caliber model, it is worth taking the time to understand what margin structure your company has, what levers you have to change that, and what assumptions must come true in order to hit your first $1M, $5M, $10M, $100M, etc.
Tight customer budgets = faster market feedback
Constraints also apply to customer budgets. Today’s startups are able to figure out whether they have true product market fit much earlier. Gone are the days of endless pilots that companies agreed to or allocated budget to just to be friendly. When purse strings are tight, your customer will only allocate precious budget (or sometimes even take the time to get on the phone with you) if you’re solving an urgent need. As painful as this might be, it’s much better for early stage startups to discover they need to shift their approach or market segment before they’ve burned considerable cash.
As my friend James likes to say, “the next best thing to a ‘Yes’ is a fast ‘No’.” Listen to the painful feedback, and set tight experimentation windows. I love Lenny Rachitsky’s post on finding PMF, where he highlights that for most of the top 25 B2B apps, early signs of PMF came just 9–18 months after having a working product in market.
New tools give early employees superpowers
Along with the financial constraints of the current market, founders are getting creative about discovering new tools that enable them to do more with less. AI-enabled applications can reduce the time it takes teams to build* the first version of their product, convert* interested customers, and communicate^ to internal and external audiences.
These new tools exist across functional areas. When I was at Uber, well over 50% of the company wrote SQL queries on a daily basis, and Uber would screen for SQL knowledge in interviews, a gating factor for Operations teams in particular. Now, tools like LogicLoop^ allow business teams to take actions on data without requiring SQL knowledge. Similarly, when I first joined Stripe as the second marketer, we didn’t have a proper CMS in place, so in addition to creating all of our own content, we had to deploy code to publish a blog post. Now, there are myriad tools that marketers can use both to create and publish content. (I promise I wrote every word of this myself — you can check GPTZero* if you don’t believe me!).
This generation of early stage founders are scrappier than ever, leveraging new tools wherever possible to move faster and more efficiently. Whenever the Gamma^ team announces new features with slick marketing videos, I get asked which agency they work with to produce such high-quality content. The answer? Video editing tools like screenstudio and jitter that enable their lean team to create professional agency-quality videos in-house!
How to best leverage constraints
So, if you’re a founder in 2024, how do you take advantage of the constraints of the current market?
- Set short experimentation windows and be ruthless when evaluating early PMF
- Build a rough financial model and get a grasp on your unit economics and the levers that impact them early on
- Do rapid customer discovery early on, and don’t shy away from the “No”s
- Leverage all of the exciting new tools that now exist to improve productivity and efficiency
I’m continually impressed by how this generation of early stage founders let the current market constraints inspire creativity and an efficient, scrappy mentality that history has shown will lead to massive, venture-scalable outcomes.
Note: companies with an * denote current Uncork portfolio companies, and companies with an ^ denote seed investments I led pre-Uncork
