Since the start of 2023 and through August, nearly 225,000 tech workers have been laid off in the tech sector. In Q1, about 33% of these companies were early-stage companies, with the number growing to 44% in Q2 and to a whopping 84% in Q3, as most larger companies wrapped up their layoffs by the end of Q2, and it’s mostly early-stage companies facing the fallout. 

By most measures, the average tech company in today's climate is having to "shrink" – either by reducing staff, taking on fewer customers, or perhaps even changing the focus of the business. It may seem nearly impossible to find a silver lining in such a period of reduction – the daily wave of budget meetings and difficult conversations with laid-off employees, while still finding ways to deliver great products to customers.

Here's the good news – history shows that for those companies that can keep their focus through this period of fluctuations, significant opportunities lie ahead. 

Companies that show sustained growth and value over time and have the resilience to endure fluctuations in the market, accept and embrace the fact that any period of growth will eventually lead to a period where growth will slow down. Such companies ensure that the “peaks” of their growth waves are higher than the next “trough” of shrinkage that they will face in the future – this looks more like a sine wave function than an exponential growth function.

Such companies often "shrink to grow," using a period of reduction to make key changes that ensure that the "peak" of the next wave of growth is higher than the previous wave of growth. This leads to steady, sustainable growth over time, by ensuring the peak of each successive growth wave is higher than the last, regardless of the depth of the troughs in between. 

Apple is one of the most famous examples, where their focus after Steve Jobs’s return to the company in the late 90s shifted to capturing the handheld music devices market rather than competing with Microsoft directly in the PC space. This then led to Apple having a foothold in the nascent smartphone market with the iPhone, and the subsequent renaissance to becoming the most valuable tech company in the world. IBM is another company that, despite its legendary brand referring to “Business Machines,” refocused its efforts on becoming a services company to find a growth market.

Other more recent examples include Best Buy refocusing its business in 2012 under Hubert Joly’s strategy for moving the business to focus primarily on building its brand and online services rather than brick-and-mortar stores and Marvel Comics deciding to produce its own films rather than license their IP out to others by forming Marvel Studios. The rest, of course, is history. 

Founders are led to believe, by the media, investors, and accelerator programs, that the "expected" growth curve for a company should be at least linear. For the ideal, high-growth "rocket ship" company, the growth curve should be nearly exponential. Every pitch deck has some version of the "hockey stick" growth curve, and every founder believes that given just the right alchemy of materials, their business has the potential to manifest the "up and to the right" unicorn horn.

This also leads to the implicit belief that if a company has to “shrink” then it’s at best “unexpected” and usually considered “a bad outcome.” This is a myth.

While there is no doubt that companies experience periods of high growth where their metrics resemble an exponential curve, such periods are inevitably followed by a period of reduction – or shrinkage. The “reduction” can take many forms but becomes most apparent during challenging market conditions and when the company is low on resources or financing.

Often, this is simply a signal that certain bets that the company has made are not working as expected, and course corrections are needed.

This is a significant advantage that smaller, earlier-stage companies have over more mature and complex organisations. In a large organisation, the complex mix of people, politics, entrenched processes, conflicting agendas, and goals can make it difficult to pinpoint the key levers that need to be adjusted to endure rapidly changing market conditions. Enter management consultants and their ever-ballooning budgets to help right the ship.

For an early-stage company, there are significantly fewer variables at play and significantly fewer stakeholders who matter. The key challenge for such a company during a time of reduction is for the founders and key executives to become hyper-focused on prioritising the KPIs that actually move the needle for the business given the market challenges that they are currently facing and that they expect in the future before the next wave of growth.

I've spent the past decade building and helping early-stage startups in sectors ranging from enterprise SaaS, gaming, and entertainment, to fintech, climate-tech, healthcare, and more, and have seen this tenet hold true repeatedly. Every early-stage company I know eventually (and often sooner than they think) faces a seemingly impossible choice to shrink or consolidate.

In November 2019, I was with my DECO co-founders Jennifer Hinkel and Sirtaj Brar in London, enjoying a celebratory drink. We had just finished a successful series of implementations of Miraculum, our first Lydion-based platform, for some of the largest pharmaceutical companies in the world. Miraculum was helping these pharma companies implement and adjudicate contracts to make high-cost drugs and therapies more affordable for patients by tracking long-term, complex outcomes across the supply chain.

From all indications, such outcomes-based drug pricing contracts were set to become increasingly common across the pharma industry, with the advent of GDPR in Europe and health policies that were being anticipated in the US. So, in late 2019, we were getting our company ready for the next wave of Miraculum implementations over 2020-21 in Europe and the US.

Then, in 2020, a global pandemic reset priorities for the healthcare industry and pharma companies across the world, and outcomes-based drug pricing contracts had to take a backseat during COVID-19. This naturally had an impact on the anticipated growth of the Miraculum business, and in addition to dealing with the general uncertainties while the world went on lockdown, we had to rapidly adjust the direction of our business to be able to deal with the 180-degree turnaround in the market. All this, while ensuring that all our existing and incoming Miraculum customers received the highest quality of service and support from the team.

It was inevitable that during the course of the pandemic, our KPIs and overall growth metrics would be reduced compared to 2018-19 due to changes in the market beyond our control. My co-founders and I, with guidance from an experienced group of advisors, embraced these difficult changes and decided to use the first half of 2020 to take a step back and evaluate the results and opportunities that the company had created for itself over the past couple of years.

Through this exercise, it became very clear that while outcomes-based contracts in the healthcare space were a compelling use case for our company Lydion technology, its uses went well beyond healthcare. Given what we had learned from building and implementing the Miraculum platform for pharma companies, using Lydions, we were now ready to tackle equally compelling use cases in sectors such as climate and sustainability, agriculture, fintech, education, and gaming – sectors that thrived despite the COVID pandemic.

Over the course of 2020 and early 2021, we slowly but surely put the pieces together within our company to be able to expand our customer base and product offerings across these sectors. Going into 2023, as the pandemic has subsided, the healthcare industry is again becoming interested in implementing long-term, outcomes-based drug-pricing contracts. DECO is now poised to grow its Miraculum platform-based business in the health sector once again, but this time the company's customer base and growth are augmented by several other Lydion-based products serving several other markets and use cases.

It's clear to us that if the pharma and health industry had not faced the challenges of COVID, then we would not have had the opportunity to expand the use of Lydions across a much broader set of markets in fintech, climate, gaming, and many others. Being forced to slow our growth over a period of time gave us the necessary fuel and insights to set the company up for growth that is a significant multiple of what we would have been able to achieve with just our health platform. We had to first shrink in order to enable this next wave of growth.

Getting to such clarity is not easy for founders through the haze of daily tasks, meetings, and "pseudo-priorities". It's easy for companies to put their heads in the sand and keep going down the same path till they run out of financing, customers, or founders. But the companies that survive and eventually thrive are able to focus solely on the opportunities enabled by inclement conditions and optimise for those opportunities – often at a significant emotional cost.

With brutal prioritisation and sage guidance from advisors and investors, founders can position their company to ride the next wave of growth – not just compensating for the period of reduction, but helping the company grow bigger than before the temporary dip. In fact, such a period is a fantastic litmus test for a company to find out exactly how much-added value their advisory board and investors actually bring to the table.  

Being a founder is not easy on the best of days, and in times like these, it's not hard to feel overwhelmed.

The goal of this piece is to give founders a simple tool – the insight to view their company's growth as a wave rather than a linear or exponential curve. This mindset gives them the opportunity when resources are scarce to make quick, high-impact decisions that put the company in the best position to ride the next “wave” of growth and ensure that their next “peak” is even higher than the last “peak.”

Of course, that doesn't mean that the journey up to the next peak won't be just as tough, but we will be much better prepared to make it there. And, hopefully, have some fun along the way.