A funny thing happens when a funded business becomes more like a bootstrapped business. How does that happen you ask? Well, it's quite simple really. Company raises money, often at tech company valuations for a company which is MOST DEFINITELY NOT a tech company.

The path to this state is actually quite simple:

- Company raises money ahead of that money’s ability to accelerate its growth, or profitability, and sometimes both.

- Company spends said money on a lot of fixed assets that it tries to leverage. Sometimes inventory, sometimes people. Often both.

- Company is still learning who their customers are, or how to attract them, and most definitely have no clue how to keep them loyal in the face of competition.

- Predictably, the outputs of that people or inventory struggle to drop to the bottom line.

- To accelerate growth, the price drops come, and the sales and marketing investments continue, accelerating the decline of the cash position.

The current investors pull the rip cord, and the layoffs come. And come. Removes as many operational expenses as possible, often in tech. The CEO’s thoughts become dominated by burn.

In some ways, 2023 has been a reset year. Many of these companies have learned some lessons. Some of them pulled out of the spiral early enough. They are “nearly breakeven” (corporate-speak translator: “definitely still not profitable” ).

What have these supposed growth companies turned into? Essentially bootstrapped businesses bouncing along the bottom. Capital-constrained.

The pace slows.

In 2024, this will create many acquisition opportunities. Private Equity and even strategic investors stood on the sidelines in 2023 waiting for (a) the bottom [we are not there yet], and (b) asset pricing clarity. The good thing about this year is there have been enough transactions in the market to help build valuation clarity.

The upshot? You cannot cut your way to success. If you are not at the same time completely reimagining your business, it’s going to be a struggle. What you need to be doing instead is reinventing your core concept.

- Am I sure that core product concept is useful and valuable to consumers?

- Am I going after the most valuable segment to my product?

- What are the economics of my core product concept?

- Do I have the right messaging and approach to attract those consumers consistently?

To do this as a capital-constrained business is quite a bit different than playing with OPM (other people’s money). If you’re a CEO in this situation, you are likely at least checking the emergency exits like you were on an airline.

Could the cycle repeat? Of course. The greatest trick the devil ever pulled isn't (as they said in the Usual Suspects) convincing the world he didn't exist; it's actually that if you use technology, then somehow you are a tech company.

Ironically, the same thing is happening with AI now. Buyer and employee beware.