Matt Spriegel, co-founder and CEO of Atiom, explains that tech startups must prioritize sustainable growth and customer satisfaction over rapid expansion. Striking a balance between initial success and genuine investment readiness is crucial for long-term profitability.
There’s a reason fables like the tortoise and the hare have been repeated over and over again for generations: because it communicates an enduring truth–that slow and steady wins the race. In recent years, that lesson has been especially hard-learned for many tech founders. Since the Great Software Recession of 2022, many startups have had to face the music. “Growth at all costs” actually came with a hefty price tag, leaving many business leaders no choice but to cut costs drastically or go out for more fundraising.
With this in mind, tech startups, especially in their early stages, need to strike a balance between rapid growth and sustainable, profitable growth. While initial success and securing investment are important, they don’t guarantee long-term success. Instead, a focus on acquiring paying customers and maintaining low churn rates are better indicators of a company’s potential for sustained growth and profitability.
The difference between success and investment-readiness
It’s only natural for any business leader to celebrate their successes, but when your company is young, it’s hard to tell the difference between initial success, and success that indicates you’re ready for fundraising. This can be especially challenging for enthusiastic founders who are naturally proud of the product they’ve built.
One common mistake comes after acquiring a foundation of happy, repeat, paying customers. Founders need to assess this kind of early success with honesty to determine if there’s real product-market fit:
- Is the tech really meeting customer needs?
- Is our tech providing value that competitors can’t?
- Are customers happy with our tech or our people?
Allowing space for some initial scaling is also a wise move:
- Do our customers evangelize our product to others?
- Is our value proposition easily communicated by those who love your product?
Any additional data points you can gain from early growth can provide crucial evidence as to whether you’ve found both a product-market fit and a message-to-market fit–and let you know if you’re ready for outside investment.
Fundraising is a two-way street
All founders are eager to grow, but accepting almost any level of investment has to be a carefully weighed decision. Fundraising aggressively on the heels of early growth is often mistaken for success itself, but I have seen countless companies raise big checks from the wrong VCs. As a business leader, entering into a partnership with an investor is one of the most impactful decisions you’ll make, and choosing an ill-fitting investor or future board member can be a recipe for turmoil.
Remember: Investment doesn’t shield founders from making the same mistakes as bootstrapped companies, but it can make your mistakes more expensive, harder to resolve, or even intractable.
Courting investors is a two-way street. While they’re doing their due diligence, you should do your own to make sure you have complete confidence that they are the right voice to welcome into your business.
One size does not fit all founders
It will take time to figure out the most efficient and effective way for your company to grow, and founders cannot fast forward this process. There’s no one way or one correct timeline for scaling.
For the sake of argument, let’s compare the growth journeys of two famous tech startups: Uber and Klaviyo.
Uber:
- 2009: Founded
- 2010: Secured $1.3M in seed funding
- 2019: IPO
- 2023: Uber becomes profitable
Uber raised more than $20 billion USD in equity and debt in the ten years before its initial public offering in May 2019. For a time, Uber was the most highly valued startup in the world – and then Uber’s IPO made history as the biggest first-day dollar loss in history in the United States. It would take another four years of growing pains, workforce reductions, and even a reported shareholder revolt before Uber finally turned a profit.
Klaviyo:
- 2012: Founded
- 2015: Secured $1.5Min seed funding
- 2023: Klaviyo becomes profitable & IPO’s
Unlike many tech startups of their era, Klaviyo chose to bootstrap through their first three years of growth. Their uncompromising focus on delivering measurable and attributable value to their customers made it easy for their customers to become powerful advocates for Klaviyo’s product. Klaviyo’s successful IPO in 2023 in a macro environment where just about every other tech startup was struggling is proof of their prudent path of fundraising and growth.
While there are many ways to reach the finish line of profitability, the smoothest roads are paved in customer satisfaction. Startups aren’t magically ready for investment after a set amount of time–they’re ready when they can show stellar leading indicators like negative churn.
Founders must master failing
While founders can learn lessons from the fumbles of Uber or successes of Klaviyo, failure cannot be avoided. For founders, failing is a skill in and of itself. That’s why founders need to become comfortable with failing–quickly. Often, breathing through failures is the best way to discover huge opportunities for growth, in yourself and your company. Like learning a new language or mastering a new hobby, there are thousands of mistakes on the journey to mastery–and you can’t reach mastery without paying those tolls.
Pay attention to local conditions
For UAE-based tech entrepreneurs, a close eye on local conditions and opportunities can pay major dividends. With the MGX fund growing to $100 billion thanks to investments in AI, companies like G42 are rising to meet the moment. Likewise, industries like fintech, health tech, and agritech are attracting major investment thanks to support from the government and other regional VCs. The UAE’s free zones like Dubai Internet City and Abu Dhabi’s Hub71 provide additional infrastructure, funding opportunities, and networking platforms to support tech companies from all over the world.
Play to your strengths and understand your worth so that when you are finally ready to fundraise, you have your pick of the right investors to partner with.
