Most of us would agree that 2023 was a challenging time to be a startup. There were many layoffs as companies struggled to transition from growth to profitability. Meanwhile, sales cycles were longer and many startups were struggling to grow at a decent pace.
As we begin to see the economic signs improve a little with inflation decreasing el money price falling and most currency headwinds reducing, you would think that 2024 could be shaping up to be a better year.
Not necessarily.
We are in a new era, in which money will not flow as freely and, according to experts, we will not see a recovery in the short term. This means that startups that are not well capitalized right now could still struggle in 2024, and the change in calendar is not going to change that.
What does all this mean for startups entering 2024? It means they have to prove themselves more than ever. It means they need enough effective to face long sales cycles. It means they have to fight for their share of corporate budgets and 2024 could possibly look a lot like 2023.
The budget outlook
A good starting point for budget discussions is what the proposed budget looks like. Analyst firms such as IDC and Gartner predict IT spending each year, although they typically adjust throughout the year as reality becomes clear.
IDC predicts growth of 6,8%, up from 5% last year. This figure looks at hardware, software and services, but excludes any telecommunications spending. Meanwhile, Gartner predicts a little more, 8,2%.
The overall upward trend has to be good news for startups, who are looking for enterprise buyers to boost their businesses. But John-David Lovelock, a Gartner analyst who analyzes IT budgets, says that while 2023 was a year of increased efficiency, that doesn't mean it ends with the new year.
“The search for greater efficiencies is now something that is in the cloud in the same way that it used to be in data centers and outsourcing contracts. So we're not over it yet,” Lovelock said.
And conversations with several CIOs seem to confirm this. Sharon Mandell, CIO of Juniper Networks, a public technology company with 10.000 employees, was able to cut $3 million from its 2023 budget, which she called low-hanging fruit. Next year, they have asked him to double that amount.
"Our goal is to save another $6 million, but that's going to be more challenging," he said. And that's especially true when it comes to entrenched processes that are part of the core business and could involve an expensive and time-consuming migration process.
Kathy Kay, executive vice president and CIO of Principal Financial Group, a financial services company with more than 19.000 employees, says her budget is increasing in line with analyst predictions, but that doesn't mean she's not still thinking about efficiencies.
“What I will say is that because of the focus on trying to be more efficient, capability is shifting between execution and change, which means our cost of executing it is decreasing, which leaves more capacity to create new capabilities. And so we've focused on that, as well as changing that mix so we can create more value,” he said.
Investor Perspectives
How do investors see it? Early-stage investor Ed Sim, founder and general partner of Boldstart, said 2024 will likely be another tough market for startups looking to sell B2B. But those who can demonstrate that they are actually delivering a significant improvement in productivity and workflow will see a success worth getting excited about.
“You have to solve a real fundamental problem and do it 10 times better, or more, than what is on the market,” Sim said. “Startups need a story about how to articulate that and have an incredibly fast time to value for that product.”
Nina Achadjian, a partner at Index Ventures, agreed. She said this isn't an environment where enterprise customers are using a bigger budget to test interesting new technologies and see if they work; Startups must demonstrate that they will make a difference in a client's results right away.
“Quickly demonstrating return on investment will be a characteristic of companies that do well,” Achadjian said. “There are many companies doing incredible things with AI, but I think the return on investment remains to be seen. I think the companies that will have the biggest advantage in getting that IT budget are probably companies where you can look at, what it costs you 'X' to produce 'Y' will cost you a third because we can automate a lot of the processes. .”
Achadjian added that startups that can attach their product to existing software and workflows that companies already have will be an easier sell, especially if they can make a smaller team more efficient, as many companies are still finding their way. adapting to layoffs.
“By meeting the customer where they are and becoming the system for their own workflow, you come in and solve a pain point that gives you an advantage in solving future pain points with that customer,” Achadjian said.
Startups that can use their solution as an entry point to potentially expand their contract with a client to other areas in the future will also do well, Sim said.
Startup sectors that saw demand during 2023 will likely continue into 2024. Security areas around data and cyber will continue to be popular next year. Sim added that he also believes that SaaS startups that can help companies implement their internal AI projects and initiatives may also start to see a surge in interest in the second half of 2024.
How do startups fit in?
It looks like many startups will still have to fight for a piece of the budget pie, and that's especially true when you consider that some entrenched vendors raised prices this year, meaning some of that budget increase will be eaten up by the higher cost. of doing business.
Then there's the new darling of the IT budget: generative AI. Everyone seems to believe that this technology is worth looking into and perhaps investing heavily in. It's another piece of budget being taken away as companies look to take advantage of new technology, often from large, established vendors.
Achadjian said a recent market survey found that many companies have a budget dedicated to AI by 2024 and many also have someone in charge of coming up with an AI strategy for the organization. While there may be more corporate interest in AI, these startups will still have to prove themselves like everyone else.
“I see pockets of growth and this is what excites me,” Sim said. "Execution, timing and truly honing that efficiency will separate the winners from the losers, which is what it should have been and was before COVID."
