Turnaround for start-ups: What it takes now in the crisis

The motto for the start-up scene must be: don't panic. With the right qualities, founders can build rock star companies even now. There are opportunities for startups in the B2B sector in particular.

Not long ago, startups were inundated with capital, with one record round chasing the next (see also "This is why the cash flood is hurting German startups"). Now, suddenly, everything is different: reports of mass layoffs have replaced reports of the next unicorn. Just hyped for an IPO, previously success-addled newcomers are now experiencing public pressure for the first time when their share price takes a spectacular tumble. How the turnaround from boom to impending recession is affecting the startup market in concrete terms - and why now is the really big opportunity for hidden champions.

Just in the middle of the boom, but the party mood is gone

Rising interest rates and energy prices, the aftermath of the pandemic, war and disrupted supply chains worldwide are the macro causes of the general change in mood. Long predicted by industry veterans but previously dismissed by up-and-comers as superfluous scaremongering, concerns about the downturn are now visible in the microcosm of the startup scene.

The exuberant mood in the venture capital market had already cooled noticeably in recent months. The FOMO (fear-of-missing-out) of investors, much cited by acronym aficionados, has given way to the fear of paying inflated company valuations. For founders in fundraising, this is already being felt in concrete ways. Even start-ups for which investors were just lining up now have to fight much harder for the right follow-up financing.

Investors have hit the brakes on hype topics

Especially in recent years, momentum seemed to be the only investment criterion. For startups, that meant "growth at any cost," regardless of risk and burn rate - the rate at which they burned through their cash. With capital in abundance, no problem, but when funding falters, it means at best: cutting costs in marketing, at worst: laying off the team.

This turn of the times is now hitting hardest the hype topics in which a lot of venture capital has so far seeped away. With Quick Commerce, e-scooters and the like, investors have literally slammed on the brakes. Even the established fintech sector is weakening. It remains to be seen what effect an impending recession will have here.

Time for the "hidden champions

Having grown up with the boom, the suddenness of the change in mood has surprised young founders in particular. Nevertheless, there is no reason to panic about a new dotcom disaster. The ecosystem in Germany and Europe has grown up considerably since then. While the Silicon Valley mentality of the U.S. rewards increased risk-taking among founders, the focus on efficiency and long-term value creation has always been much more deeply rooted in the startup and funder DNA in Germany. The majority of startups are also solidly funded, have resisted the temptations amid the cash glut of recent years, and have also scaled without much overhead.

Instead of the greatest possible momentum, what counts now is specialization, efficiency in the use of available funds, and a clear strategy toward profitability. This is the great opportunity for the "hidden champions", such as the team from Plantura, which has built up a flourishing company and a loyal customer base without a lot of media hype and with only low marketing costs.

Great opportunities for B2B newcomers

Already structurally the underdogs of the industry, B2B start-ups in particular could now come up trumps. On the one hand, they are much more cost-conscious when it comes to marketing expenditure, and on the other, the pressure on companies to optimize in the face of an impending recession opens up new opportunities for innovative business models. When digital solutions for transparent supply chains and efficient logistics are in demand, for example, specialized newcomers such as Metalshub from Düsseldorf, which enables price transparency in raw metal trading, or the digital warehouse-as-a-service solution from the Munich-based company Everstox, benefit. How to build real rock star companies in the supposedly unsexy B2B sector has been demonstrated by the (now-not-quite-so) hidden champions Celonis and Mambu.

Conclusion: No matter whether B2C or B2B, don't panic about the crisis! With a clear focus on profitability, a certain sense of proportion when it comes to growth and problem-solving qualities, founders can also build real rock star companies now.