Investors globally have now changed their mantra from high growth to high profitability. early on in a startup, there is a higher probability for a company to burn money while finding the product/market fit.
“i2i Ventures will avoid investing in cash-burn startups,” said Misbah Naqvi, co-founder of i2i Ventures, during a panel discussion at the inaugural Happy Hour by Orbit Startups in Karachi. “We are sector agnostic and always look for disruptive opportunities early on. To me, it’s more about founder-market fit as it’s the leadership that navigates the startup out of the chaos in the early stages of building. Startups should focus more on retaining current users than increasing the burn on acquiring new users consistently.”
Her fellow panelists were Bykea chairman Jonas Eichhorst and Orbit Startups MD William Bao Bean. A report by Founder Pakistan detailed the seven ways startups should reduce OPEX, which include non-essential such as:
- Unnecessary marketing – offline marketing on mediums that have weak measurement and attribution systems such as OOH media.
- Leakages in petty cash – not keeping check of small expenses.
- Unsustainable salaries and bonuses – STEM-based executives earn 5x of management executives, founders drawing at least 10m in annual salaries.
- Subsidies that make no sense for user growth and acquisition at the expense of unit economics – quick commerce startups and others offering 20% discount.
- Spending more than usual on office furniture etc – digital-first startups choose office settings instead of remote or hybrid.
- Hiring just for the sake of hiring – to show VCs growth.
- Office Rent and other operational costs.
- Inner-city travels – traveling for events such as Future Fest without due diligence
- Merchandising expenses – including branded giveaways.
- Team entertainment expenses – such as team bonding trips up north.
“You make money, you spend money on expenses, and you stop wasting money on expenses that are not justifiable,” said Eichhorst. “Startups need to be very transparent about where they spend money and look at what’s justifiable to spend on. Audits are one way to keep a check on expenses, but they are not feasible for every startup.”
Startups that subsidize demand and fail to improve margins or pricing over time – even failing to take advantage of inflation – are in the category of companies that i2i Ventures intends to avoid. This sentiment was mirrored by Eichhorst as well, adding that start-ups that cannot charge a profitable price are essentially admitting to failing to get product validation.
The reality is that pricing is an indicator of value and quality, with most startups chasing growth through acquisition instead of growing customer lifetime value and deepening existing customer relationships. Studies and earnings reporters from companies worldwide show that a customer and talent retention-focused business inspires deeper and longer-lasting loyalty, which impacts margins and productivity.
Unfortunately, only a market crash or recession will teach cash burn startup founders the importance of retention culture over acquisition culture.
