Late-stage tech startups are facing a changing public market environment, but their early-stage counterparts are in a different world altogether. The cohort has had access to ample capital in recent quarters, giving them a bubble of venture capital that somewhat protects them from rapid changes in the greater economy.
While the bubble is not popping, it’s changing shape.
We may not see early-stage startups go through aggressive rounds of layoffs or experience rapid cuts to valuations due to shifting market conditions, but there’s a different signal worth tracking: pivots.
Pivots – a change in business strategy based on a new insight or market trend – are somewhat inevitable for young companies still chasing product-market fit. I’d argue that pivots are more important to track than fundraises, because they give a snapshot of a startup reacting to new tensions in the market.
Plus, unlike funding rounds, a pivot is a definite signal that something is changing, a tension other than a cadre of investors affirming that a founder is on to something big.
Following conversations with a number of investors and founders, it’s clear the coming weeks and months will include many subtle shifts in how early-stage startups do business. Some may re-prioritize objectives to reduce risk, while others may pursue new, more near-term business models to finally get some revenue in the door.
Pivot, pivot!
Pivots were popular even before the market changed. Everyone was pivoting to Clubhouse, and then everyone was pivoting to the metaverse. Now, everyone is pivoting to more sustainable revenue models.
Winnie, a startup that connects parents to childcare options, told TechCrunch this week that it is launching a new product: Winnie Pro. The service will help childcare centers grow and manage their businesses, not just fill empty seats.
Winnie Pro also means the company, which has investment money from Unusual Ventures, Homebrew, Day One Ventures, Reach Capital, and most recently Salesforce Ventures, has an expanded business model.
Previously, Winnie made money based on how many parents it sent to a childcare center, or the pay-per-lead model. The strategy worked well over the pandemic because Winnie experienced a surge in traffic, leading to 8x growth in revenue, CEO Sara Mauskopf says. The company is now evolving to a place where it wants to do more than just place “butts in seats.”
“Unlike subscription revenue, [pay-per-lead] varies every month based on how many parents you are trying to care for,” Mauskopf said. “One of the things we saw recently was that a lot of providers were limited by staffing challenges, so they were like, I can’t take any more leads right now.”
The company is now pursuing a SaaS-like model in which it charges a monthly fee, which ranges based on the capacity of the center, to help businesses with marketing, enrollments and even staffing. “Building in services that are always useful for your business are a way to also always deliver value to these providers, not just when they need seats,” Mauskopf added.
The pivoting business model feels like a natural evolution for the company, which can now give consultancy-like advice to centers based on the demand that it sees from parents. For example, Winnie could tell a business that parents in their geography are hungry for drop-in care and advise them to hire accordingly to service demand, and eventually increase revenue. Flywheels feel good, don’t they?
Going from a consumer marketplace to a B2B software model and a marketplace is one example of how startups are evolving during this time to be more ambitious and sticky when serving their customers.