As a venture partnership of current founders, the Flex team is not merely keeping tabs on how things are going with portfolio companies, we’re living it day to day. Coming into 2024, we were seeing a host of factors conspiring to create a pretty challenging environment, so in our latest network survey we wanted to hear if our CEO contemporaries agreed and how they are preparing for the year ahead. Click here if you are interested in joining our CEO network.
Supplemented by the intel from almost 80 CEOs, our view of the challenges and opportunities for the coming year has come into focus. First and foremost, we were struck by the powerful optimism of founders going into 2024, even in the face of some ongoing macro uncertainty and roadmaps that did not necessarily go to plan in 2023.
We’re well aware that downturns can often present some of the best proving grounds for up-and-coming companies, and this is energizing for us as investors and founders ourselves. The question of course is how companies respond when presented with that make-or-break moment. The CEOs we polled are in action mode, sharing that they’re primarily focused on executing on their product roadmaps and getting the right people and resources in place to achieve those goals.
As we all buckle up for 2024, here were our main takeaways from the survey data.
Macro Outlook Hazy
The macro picture from where we sit today is hazy. With hindsight, we can say that 2022 was the year the music stopped (with rates rising dramatically and markets selling off sharply), and 2023 was the year of hunkering down to ride out the storm. The story for the year ahead has not yet become clear.
In our survey, many CEOs are cautiously optimistic and seeing incremental improvement over the beginning of last year.
However, many also highlighted key issues that render any big macro calls very difficult to make. One that’s top of mind is the continued uncertainty around fundraising, which many CEOs mentioned in the same breath as interest rates. Some expressed concerns here, and others thought VC purse strings might be loosening up towards the latter part of 2024 if rates start to decline. Another topic our cohort mentioned muddying the macro waters is geopolitical instability, both at home (US elections) and abroad (war in the Middle East and Ukraine).
At the more granular level, a number of CEOs brought up questions about consumer confidence, overall caution around spending, and how those together might impact growth. And of course, AI was on the minds of many respondents. Some thought the crowding/hype around AI companies would continue, while others are forecasting a shakeout that could drive consolidation around the companies truly adding value.
Taking the cautious optimism together with the above concerns, we see a continuation of the 2023 “sustainable growth” theme given these big question marks that are unlikely to be resolved in a clean manner before year end. That being said, as interest rates likely ease up in the latter half of 2024, companies in strong standing will welcome a lower cost of capital and may be able to be more aggressive with investments.
Back to Basics
What are CEOs doing in the face of all this ambiguity? As capital becomes scarce, founders are focused on the highest ROI activities. According to our data, these are (in order):
- Product
- GTM improvement
- Adding capital to the balance sheet
Our results show in no uncertain terms that the top priority is on unlocking key product developments and launches. Almost 80% of respondents ranked this as a 4 or 5 on the scale of importance. In a tough market, when it’s harder to add net new ARR (particularly without extra budget to spend on GTM), we are not surprised to see companies focusing on adding products or features to keep existing users engaged, demonstrate value add, and mitigate churn.
This relentless product focus is in line with the resilient and disciplined founder mentality that many see emerging from founders as they come out of 2023. It might also explain the overwhelmingly positive outlook that many CEOs reported for their companies in the year ahead. Fully 90% of respondents characterized their company’s prospects for 2024 as either somewhat or very positive. Having made it through the cost-cutting gauntlet of 2023, founders can start to return to focusing on what they love most (and we believe what they do best) -- build.
While it wasn’t top of the priority list, we also note that the 45% of respondents who said they are actively thinking about fundraising in 2024 represents a marked change compared to the dearth of non-AI deal activity in 2023.
Investing in People
In another reversal from 2023, CEOs reported that the greatest incremental investment is being made in people, a noteworthy result after a year characterized for many by layoffs and downsizing. 56% of respondents ranked People as a top priority (4 or 5 on the scale) for incremental investment in 2024. This result also lines up with the deprioritization of cutting headcount and costs and with the optimism around both individual company and macro outlook for 2024.
In recent conversations with portfolio companies, the #1 ask for us has been related to people. In some cases, this has taken the form of a straightforward request for introductions related to key hires. In other cases, however, founders have wanted to dig deeper with us, looking for our help crafting the right profile since we’ve hired for these positions before (or sometimes been in them ourselves). Within GTM for example, the first hire for the team can really set the tone, and is also one that can cost a company dearly in terms of time and resources if it’s not the right fit.
The question of hiring to fuel growth vs. cutting burn to preserve capital is one of the toughest ones there is for founders. We’ve faced the same choice on multiple occasions. As we’ve recently counseled some of the CEOs in our network, the decision from our perspective comes down to the expected ROI on that spend and what value they’d reasonably expect the market to place on the results if everything goes according to plan. There are lots of assumptions that go into that calculus, and we know firsthand it’s a tough call.
What it All Means for 2024
For many companies and founders, 2024 will be the year of attaining hard won answers to some tough questions around the viability of their market, the grit of their team, and the quality of their product relative to competitors.
Ironically, during times of abundance (such as 2021), there’s actually a lot of underlying scarcity in the market. It becomes more expensive to hire people, and customer acquisition costs can rise. On the flip side, during times of perceived scarcity, it can be easier to hire talent, rise above the noise in your category, and consolidate competitors.
With plenty of dry powder, investors will have more latitude to be aggressive this year, especially with a bit more certainty around interest rates (lower) and the economy (flattish). The vast majority of companies that need to raise may not be able to do so, but those that can will likely find it easier than in 2023, and their prospects will be much brighter going forward.
As repeat founders, we’ve been through challenging situations and experienced all the possible outcomes. We are currently in the thick of it, struggling through this period ourselves. Like the CEOs reading this, we are focused on what we can control: delivering products that bring jaw-dropping value to as many customers as possible, building an amazing team, and keeping the company alive.
Starting a company is supposed to be hard. In some senses, the harder it is the better, because setting the bar higher means that as weaker companies get filtered out, capital and talent can find their way to those truly generational opportunities. Every great founder and company story involves crucible moments. If you’re in one right now, you’re in great company.