These are the new rules for startups in a post-pandemic world

The pandemic disrupted the startup world like never before. Market froth was churning overtime. For venture capital investors, it was jump ball after jump ball. For businesses seeking funding, it was clutch-time mania.



“Over the course of 2020 and 2021, the mantra that a lot of tech companies were generally adhering to was: grow, grow, grow,” Joe Thomas, cofounder and CEO of Loom, a workplace video messaging platform, said at Fast Company‘s Most Innovative Companies Summit on Thursday. “That was like the only thing that was rewarded—how quick you can grow the top line.”



But in the past year, the jump balls stopped. The VCs are taking a breather. “Now, the mantra has shifted to: growth-burn margins,” he says. “How much capital are you burning?”



Over-hiring is the most obvious blunder. In recent months, layoffs have swept through the tech industry, with pandemic winners from Amazon to Netflix to Zoom announcing job cuts in the thousands. But as dire as the news may seem, it’s not a death knell for startups. Far from it, explains Brett House, an economics professor at Columbia Business School and public policy fellow at the University of Toronto, who also spoke at the summit.



“Some of what we’re seeing in tech is a return to the normal baseline, rather than a downsizing of the sector,” he says. “It is disruptive to go back to normal, as much as it is to deviate from normal.”



For sure, it’s been head-spinning for startups. The rules have changed twice now—first, when they had to navigate the freewheeling pandemic times, and now, when they have to keep steering the ship afloat as the tide rolls out.



“The previous two years were chaotic,” says Thomas, who got lucky with betting big on video conferencing years before COVID came around. “The last 12 months has been a bit more principled, around business fundamentals.” In other words, it’s back to Entrepreneurship 101.



“Think of the playbook you had in 2019, and dust that off,” says House.



What will it take to succeed? House predicts two prime factors, one being those businesses that reduce friction in our ever-more frictionless society. “There are a huge number of ideas that are great in and of themselves, but are still hard for the average person,” says House. Like cryptocurrency, for example—figuring out how to use digital wallets and exchanges can be bewildering. But the invention of crypto ETFs, which let laypeople invest in the space without having to wrangle crypto holdings themselves, has helped them hurdle the barriers to entry.



The second factor is timing, when the stars of the macroeconomic climate align. “Just as culture can eat strategy for breakfast, the macro environment can eat the micro environment for lunch,” House says. And in fact, the macro climate is primed for innovation right now. According to him, in terms of VC money, there’s a “huge amount of dry powder sitting on the sidelines,” just waiting to be deployed. But firms are taking more time to vet potential investments, and to find early-stage angels that will soar.



“It’s been more difficult,” admits Thomas, whose startup, Loom, is a Vine- and TikTok-inspired app for recording and sending video messages between coworkers. “[But] that doesn’t mean, in the grand scheme of the last 50 years, that it’s not a great time to build a business.”



For those who aspire to greatness, House has new rules to live by. “Lean into the uncertainty, because it creates windows of opportunity that wouldn’t be there otherwise,” he says. “Stay nimble. Don’t be afraid to give up what you’ve committed to if it’s not working anymore. Sometimes closing one door is exactly what allows another door to open. Don’t let sunk costs—a commitment to a beautiful idea that simply isn’t being picked up—prevent you from capitalizing on another one that’s in front of you.”



Survival of the quickest will reign, Thomas agrees, citing a catch-phrase from a 2022 deck put together by top venture firm Sequoia Capital. But he has one caveat. “Still be thoughtful . . . Don’t act rashly,” he says, noting that the doomed Silicon Valley Bank, which collapsed in March, fell victim to “the fastest bank run of all time.” But if companies hadn’t raced to pull their money from the collapsing system, well . . . “SVB could have been fine.”



SVB’s crash and burn might be the clearest signal yet that the pandemic gravy train is over for tech startups. Now, they’ve got to tighten up and buckle down. But if you look at the bigger picture, it’s certainly not all bad.



“I don’t think any of us want to revisit 2020, in a broader sense,” House laughs. “[It] doesn’t go down in most people’s photo albums as their best year ever.”