Late-stage tech startups face a changing public market environment, but their early-stage counterparts are in a completely different world. The cohort has had access to ample capital in recent quarters, giving them a venture capital bubble that provides some protection from rapid changes in the larger economy.
While the bubble doesn’t pop, it changes shape.
We may not see early stage startups going through aggressive layoffs or experiencing rapid write-downs due to changing market conditions, but there is another signal worth following: pivots.
Pivots – a change in business strategy based on a new insight or market trend – are somewhat unavoidable for young companies that are still looking for a product-market fit. I would say pivots are more important to track than fundraising as they provide a snapshot of a startup responding to new tensions in the market.
Furthermore, unlike funding rounds, a pivot is a clear signal that something is changing, a different tension than a group of investors confirming that a founder is on to something big.
After talks with a number of investors and founders, it’s clear that the coming weeks and months will see many subtle shifts in the way early-stage startups do business. Some are re-prioritising objectives to reduce risk, while others are pursuing new, shorter-term business models to finally bring in some revenue.
Turn, turn!
Pivots were popular before the market changed. Everyone turned to Clubhouse and then everyone turned to the metaverse. Now everyone is moving towards more sustainable revenue models.
Winnie, a startup that connects parents with childcare, told Marketingwithanoy this week that it is launching a new product: Winnie Pro. The service helps nurseries grow and manage their business, not just fill empty seats.
Winnie Pro also means that the company, which has investment money from Unusual Ventures, Homebrew, Day One Ventures, Reach Capital and most recently, Salesforce Ventures, has a comprehensive business model.
Previously, Winnie made money based on the number of parents she sent to a daycare center, or the pay-per-lead model. The strategy worked well during the pandemic as Winnie experienced an increase in traffic, leading to an 8x growth in sales, said CEO Sara Mauskopf. The company is now evolving into a place where it wants to do more than just put “butts on chairs”.
“Unlike subscription revenue, [pay-per-lead] varies each month based on how many parents you’re trying to take care of,” Mauskopf said. .”
The company is now moving towards a SaaS-like model in which it charges a monthly fee, which varies based on the capacity of the center, to help businesses with marketing, subscriptions and even staffing. “Incorporating services that are always useful to your business is one way to always deliver value to these providers as well, not just when they need seats,” Mauskopf added.
The running business model feels like a natural evolution for the company, which can now provide consultancy-style advice to centers based on the demand it sees from parents. For example, Winnie might tell a company that parents in their area are hungry for walk-in childcare and advise them to hire accordingly to the demand for services, ultimately increasing revenue. Flywheels feel good, don’t they?
The move from a consumer market to a B2B software model and marketplace is an example of how startups today are evolving to be more ambitious and tacky in serving their customers.