If you sell to startups you should expect churn (they go out of business) and if you happen to catch the next big startup, you’re business model needs to be uncapped to grow along with it. For example, Stripe worked with Shopify when they were a small nascent startup, Checkr worked with Uber, and so on. They were able to grow their business because they grew with the volume of transactions.
From a conversation with Jonathan Ehrlich, Partner at Foundation Capital.
Links to this note
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Running a Startup During a Recession
Startups are a microcosm of the economy and we can observe that things are changing quickly towards a recession footing. The effects of inflation on valuations are readily apparent, but we also see that things were too good to be true and investors and late stage companies exploited it.
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Applications for New Businesses Are up 20 Percent
In 2021, 5.4 million applications for new businesses were filed. This rise in entrepreneurial activity coincides with the Great Resignation and the COVID-19 global pandemic where people are re-evaluating their relationship with work.
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High Growth Companies Grow Quadratically
Most runaway successes we hear about often have some mythology of the moment the founding team unlocked exponential growth. Examples include Slack, Facebook, and HubSpot. The only problem is, most of these growth stories are not actually exponential but closer to “an initial period of quadratic growth followed by linear growth”.