A global economic downturn might be cooling a once blockbuster funding environment for startups, but don’t let the gloomy headlines dent your growth ambitions. Technology advancements are reigniting investment activity and creating new opportunities for scrappy founders that can take advantage.
The commercialization of large language models like ChatGPT is driving tremendous excitement about the future of artificial intelligence. In fact, worldwide spending on AI is now expected to hit $154 billion by the end of 2023, according to research firm IDC. And that will have a ripple effect through all areas of business.
Already, investors are rushing to fund new AI startups. Meanwhile, areas like cybersecurity continue to see sustained investment. Sure, financiers are more cautious in their bets, and startups now have a mandate to run more efficiently. But the opportunity has never been better for savvy entrepreneurs to build sustainable businesses and investors to make smart — and eventually, lucrative — bets on software’s next-generation.
Founders need to ensure they are preparing their own businesses to capitalize on the potential ahead. But competition is fiercer than ever. No matter what type of software they’re selling, startup leaders have to intimately understand their target customer and their challenges, then build products that address all those needs in one easy-to-use and secure platform.
Recently, at RSA, the largest annual gathering of cybersecurity professionals, I had the opportunity to speak to many of the industry’s top entrepreneurs about the strategies they are using to hit their next financial milestones — whether that be $100 million, $500 million or $1 billion in annual recurring revenue. This built on my own experience as a four-time CEO, including three times of a public company.
Here’s what I learned.
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1. Don’t start small
In the beginning, many founders will make the mistake of trying to target both small and large businesses. It divides the sales team and diverts attention away from the true profit center for most early-stage startups.
Enterprises have a much larger appetite for experimentation. They’re willing to invest in narrow applications that provide capabilities that their larger platforms can’t handle — what’s often referred to as “best of breed” systems.
Instead of wasting time chasing down customers that often don’t have the budget for many new IT tools, founders should focus on solving a narrow problem for one customer segment – whether hospitals, manufacturers or retailers — then go after the largest organizations in that sector.
That way, startups can quickly narrow down the total number of potential corporations’ customers to target and spend the rest of the time figuring out the most effective sales approach to win their business.
2. The world is hybrid. Build your product around that.
It’s obvious that enterprises aren’t standardizing on one IT foundation. Businesses are using multiple infrastructure vendors — usually some mix of Google Cloud, AWS, Oracle, or Azure — and many still keep a small footprint of private, on-premises data centers.
That means startups can no longer afford to build for just one ecosystem. They have to ensure their products work in all those different environments. The better startups can do this, the more successful they will be with customers.
Related: You Should Let Your Team Decide Their Approach to Hybrid Work. A Behavioral Economist Explains Why and How You Should Do It.
3. Don’t ignore the public sector
Back in the 1980s, Oracle nabbed the CIA as its first customer. Over four decades later, government institutions have become an even more vital launch pad for tomorrow’s technology giants.
There’s a huge digitization push in the public sector. Around the world, governments are investing in upgrading local and national IT infrastructure, deploying new AI-powered applications and seeking to safeguard all the new software from increasingly hostile cyber adversaries. Founders should take advantage of this.
Public sector customers often invest for the long haul. It’s why so many vendors can build sustainable businesses just by catering to government customers. But don’t underestimate the unique challenges in growing that business.
For many, it will be too difficult to build a profitable company trying to tackle both public and private-sector clients. Instead, startups should decide early-on whether which market they want to target and invest accordingly.
4. Connectivity is a huge challenge for businesses — and a big opportunity for startups
For businesses, the secret sauce to an AI future is connectivity.
No longer can enterprises afford to let their technology environments run in silos. With the rapid acceleration of AI, businesses are trying to link those disparate systems together to build richer data streams that can help feed relevant and timely information to the models constantly.
Of course, that’s easier said than done. Many enterprises are running hundreds, if not thousands of applications. They’re in multiple clouds. And they have many legacy programs to manage alongside the new digital investments. For startups, there’s major growth potential for tools that can help customers deal with that complexity.
For example, in cybersecurity, companies like Claroty are growing quickly by helping customers protect their newly connected physical and digital environments — what some call “cyber-physical” devices — that are increasingly under attack from cybercriminals. In a hospital, this could be the medical devices used on patients, along with elevators, escalators, or oxygen machines in operating rooms.
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