Default Alive

The world has changed, and we are ready for the ride!

The environment in which startups have operated is very much changing, and it is changing fast. In the last week, at Remotely we've seen the impact from first row: hiring pipelines slowing down, startups implementing hiring freezes. Most importantly, funding is clearly not as “freely” available as it has been.

In 2015, Paul Graham wrote about a simple framework for understanding the (temporary) lack of profitability of the company. The test is simple: can you (all things equal) get to profitability with the cash you have available if you keep your expenses constant. In his essay “Default Alive or default dead?” he claimed that the excess of liquidity in the VC market, and how easy it was for companies to raise money, was a slippery slope that turned most startups into default dead, as there was always capital available when need. As a reminder, the number one reason for a startup to die is to run out of money.

Warren Buffett put it more graphically: “Only when the tide goes out do you discover who's been swimming naked". And the tide is indeed going out.

How should developers think about this?

If you are in a recruiting process, try to speed it up. The window is likely closing, and you may want to join ASAP. Here you have a few tactics that you may want to consider:

• Be responsive, and do not unnecessarily delay a process if you can avoid it.

• Consider not getting a great offer 2 weeks from now in favor of getting a good offer today.

• Try to move the start date closer to today.

How should startups think about this?

YC has shared a list of recommendations. Digest it, and see what it means for your company to implement some/all of them.

David Sacks has a slightly different approach/set of suggestions in his Twitter thread “Default Investable”. He argues that capital is not drying out, but rather VCs are not giving any leeway to companies if their internal operating metrics are not great. There is no slack for companies to “figure it out later".

What are we doing at Remotely?

As we stated during the formation of the company, despite the abundance of capital in the market, we decided we wanted to be profitable and grow by our own means. That bet seems to have been the right approach now (we did not look very smart for a year or two), and we plan to double down on it despite being in a position of strength.

As a result, this is what we are doing:

• We are increasing on focus. Stop exploratory projects, and question what matters in the face of death. For us, that means seeking more (and more diversified) sales, a faster matching experience (improve our product with customer feedback), and reshuffling everyone's role to align to a new reality. Everything else has been put on hold.

• We are getting closer to our customers. We want to have a closer/tighter pulse on how they are doing, and help them think through their strategy.

• We are getting closer to our developers. This is likely to be their first-hand experience in losing power at the negotiation table. Since the table has likely turned, developers may not have the upper hand anymore and we can help them graciously navigate the transition to the new norm.

• Refine, crystalize, and distill our value prop to its maximum essence. Take this moment of uncertainty to really nail down our pitch to developers and companies.