How Fintech Startups Can Pivot To Profitability Despite Any Recession

We have exited the growth-at-any-cost era, so the startups that are able to extend their runway and drive profitable growth are most likely to survive. With global venture capital funding down 53%, to $76 billion, in the first quarter of 2023 according to Crunchbase, and the collapse of Silicon Valley Bank, VCs are now signaling an 18-24 month funding drought. There are, however, key steps fintech founders can take to become lean and profitable, fast.

Not only is funding down from a year ago, when VCs plowed $162 billion into startups, today’s macroeconomic environment is a forcing function for a startup ecosystem characterized by profitable, scalable growth and technologies with a clear competitive advantage.

As a fintech co-founder, I believe the key to building a sustainable and disruptive business lies somewhere in between “growth-at-any-cost” and “profitability above all else.” The pivot to near-term profitability is a significant opportunity for many of my fellow founders—if they can do these five things:

1. Focus the team on innovation and technology that has a clear competitive advantage and commercial return on investment. AI and Advanced Machine Learning are obvious examples, as evidenced by Microsoft’s $10 billion investment into OpenAI in Q1 2023, 13% of global VC funding for the quarter.
2. Orient the business to hit profitability within 18 months. Startups who are extending their runway by managing the top and bottom line are in the best position. Shifting research and development investment to innovations that can be in-market in the next 12 months, reevaluating geographic expansion and renegotiating vendor agreements are obvious line items decision makers should consider.
3. Focus their mergers and acquisitions strategy, plus build versus buy decisions, on markets where initiatives will deliver profitable growth in the next year. For one famous example, Markus Villig, the founder of ride share company Bolt, decided to focus on often-overlooked markets like Africa and Eastern Europe instead of using Uber’s
   UBER
   spend-to-grow playbook. This winning strategy allowed Villig to turn Bolt into an $8.4 billion company with more than 3 million drivers in 45 countries.
4. Never underestimate the importance of product/market fit. The best way to do this is to act local while thinking global. I learned this lesson myself when my company, wefox, entered several European markets with a local partner. Having boots on the ground is crucial for finding product/market fit. We launched products that filled a market gap specific to that region of Europe. When we do extensive trend analysis, we use regional rather than global data. Overall, we focus product development in areas where there is a specific product/market gap and opportunity to serve a consumer segment that isn’t currently participating in the market. Ask yourself where there is an underserved region or sector that you can really focus on.
5. Build a board that includes experienced leaders from the industries their business is disrupting. Find a way to leverage your industry relationships to get introductions to forward-thinking leaders who would understand the role tech is playing in disrupting the sector you want to focus on. Find experts with experience addressing value-creation opportunities in your industry.

The startups that survive the current market cycle will lay the foundation for a stronger ecosystem focused on innovation that drives profitable, scalable growth and enduring value.