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In Lithuania, we often link unicorns to success, but 9 out of 10 startups worldwide fail. Startups and the unicorns that they sometimes bear disrupt traditional markets, change our habits and shape global trends by offering radically different value propositions. The lessons learned on this path can certainly help alleviate the hardships that await, if we make use of short-term turmoils in the long run.
What’s going on?
The media branded this May as the month of mass layoffs. Such companies as Sweden’s fintech giant Klarna and Germany’s food delivery startup Gorillas announced letting a lot of staff go. We have to face the fact that investor behaviour has changed. Previously growth was top priority and there was money on the table. Now, many investors are pulling the handbrake, instructing startups to satisfy their needs with the money they’ve already raised until the end of the year.
At the same time, investors turn to businesses that show confident, consistent and sustainable growth. The upcoming recession will undoubtedly impact startups that live off investment. Talent availability will increase, and we’ll also see things like redistribution of resources and good old cost-saving.
How does Lithuania stand out?
A significant part of big Lithuanian startups are already profitable and do not depend on investment for growth. The recession will have a minimal impact and might even help attract talent in the long run. For instance, in the past several weeks PVcase, a solar energy software startup, received several offers from foreign companies to hire specialists they are planning to lay off. They saw an opportunity in the crisis but not everyone will do the same.
“Only when the tide goes out do you discover who's been swimming naked,” Warren Buffett.
Many professionals in their 30s don’t even remember the previous economic crisis in Lithuania, as they always worked during times of growth. This can’t be disregarded. Sharing best practices is paramount, as it can help find solutions and safeguard against situations when a person tells you “It’s fine” but then in a few months you’re reading about their company going bust.
“Only when the tide goes out do you discover who's been swimming naked,” Warren Buffett, one of the world’s most successful investors, once said. Not to sound too graphic, but now is about time to check whether you have your bathing suit on and whether there’s someone to lay a towel for you.
According to Unicorns Lithuania data, Lithuania has 766 active startups that are playing an increasingly significant role in the country’s economy. In 2021, these startups paid almost €200 million in various taxes while attracting €428 million. Looking at the first quarter of 2022, growth rates are obviously not slowing down, and in some cases are actually increasing. In the first 3 months of the year, Lithuanian startups added €60.6 million to the country’s budget, which is 43% more than in the same period last year. The number of employees working in the sector also grew by a quarter and now stands at 16 thousand.
What awaits us?
More selective investment, slower growth and hiring. However, if you always factor in a potential freeze, you follow a completely different business model. You don’t just think about tremendous growth at all costs (which is a common approach in the States), you also take profitability, sustainability, autonomy and lasting value into account. Some of the global startups, who got used to the US approach to business, will have to turn to European or even Lithuanian conservatism. Those who learn to be nimble in the face of change, to responsibly plan, be smart about expenses and stick together even during the winter will prevail. For such a startup, a crisis can offer an opportunity, not a verdict.
