Balancing Growth and Profitability

When we spoke to founders and startup leaders in Southeast Asia and India, we found that about half the respondents (53%) said that it was easier to grow the company in the last one year as compared to previous years. On average, series A and series B startups found it more difficult to grow as compared to their earlier stage counterparts.

Venture capital (VC) firms like Antler, a global early-stage venture capital firm, have also observed higher growth rates in early-stage investing in the region. In fact, a report by Tech in Asia found that early-stage deals garnered a larger share of the total funding in 2023, accounting for 94.1% of the deal volume.

Jussi adds that early-stage investing is outperforming late-stage investments with higher growth rates in fundraising and deployment. This is a leading indicator for investors to be attracted to the returns early-stage startups can offer. 

The survey also revealed that customer acquisition and retention have become more manageable, with 55% of the respondents saying acquiring new customers and retaining existing customers have become easier in the past year than compared to previous years. A combination of innovative acquisition strategies and a heightened focus on customer retention has been instrumental for startups to continue their growth trajectory over the past year. 

Multiplier, a series-B Singapore based startup has seen significant success with a multi-channel approach. “Digital marketing, particularly through targeted ABM, social media campaigns and content marketing, has been a major driver for new customer acquisition. We’ve also leveraged partnerships and are starting collaborations with industry influencers to expand our reach and credibility.” says Sagar Khatri, co-founder and CEO of Multiplier.

Focusing on core markets pays dividends

But while startups are adapting quickly to this changing macro environment, 23% say it has gotten harder to enter new markets. This challenge causes more concern for startup growth plans than developing new products, acquiring new talents, or diversifying into new business verticals. 
 
So, how can startups navigate this challenge? “Focus on one core geography,” offers Ajay Bulusu, co-founder of NextBillion.AI, a Singapore based Series-B startup. “If you want to scale your SaaS business to US$100M ARR, the US is the only geography to focus on. Build your 0-1 in one core large market and then expand your wings.” 
 
Startups in the region are indeed being more selective about which markets they expand to. According to Tech in Asia, Indonesia’s eFishery and chiplet specialist Silicon Box chose to expand to India, tapping into the country’s vast potential for aquaculture development. Their strategy contrasts with the more regional focus adopted by larger enterprises like Grab and GoTo which were focussed on expanding across Southeast Asia. 

Is balancing growth and profitability feasible in practice?

Almost all startups (98%) across the region agree that a clear path to profitability has become more important in the last year, as compared to the years prior. This sentiment is especially strong in India and Indonesia, with 44% and 48% respectively strongly agreeing with this statement. 

“Growing profitably is at the centre of our core philosophy. We specially focus on inbound channels, SEO and content marketing to drive our top of the funnel. At the same time we make sure that our funnel is efficient and there’s no leaky bucket. A platform like HubSpot really helps us there,” says Aquibur Rahman, co-founder and CEO of Mailmodo, an India based SaaS company backed by the likes of Y-combinator and Surge by Sequoia Capital.

Commenting on the Indian startup landscape, Tony Yeoh of M Venture Partners, an early stage VC in the region, says “When GDP per capita increases, discretionary spending will also concurrently increase. India’s founders are well aware of this and we have seen a huge uptick in founders starting a D2C business (especially within the beauty & personal care space) in the last one year to target the young, urbanised and rising disposable income group. However, this in turn creates a competitive environment to acquire customers.” 

He advises founders in D2C businesses to remain highly sensitive to rising customer acquisition costs as they scale and utilise suitable sales tools to guide their sales team in going after the most promising clients.

Carmen Yuen, General Partner of Vertex Ventures Southeast Asia and India recognises the difficulty of balancing growth and profitability.

She elaborates that their portfolio startups were focused on getting the ship in order by first optimising for expenses such as software subscriptions, rental - non-people related expenses. Then they optimised for people (asking questions such as can teams double-hat, can we shift work to other regions where people can do more?).  

Carmen cites The ParentInc as an example. They were merciless in driving profitability and did so in Q3/Q4’23.  During this time, they also acquired MothersWork. “This year, we have paved the way for growth and it is kudos to the Founder Roshni Mahtani and her leadership team for being laser focused on the cost cut exercise; and to do it swiftly and decisively.” - Carmen adds. 

NextBillion.AI employed a conservative hiring approach and kept a low burn rate so that it could easily switch to a low-spend, moderate-growth model. They grew through organic marketing, referrals, and partnerships, cutting burn in R&D and events. 
 
Echoing the sentiment that the path to growth and profitability starts after reaching a certain size, Andrea Baronchelli, co-founder and CEO of Singapore based fintech startup Aspire, says, “We pivoted from growth to profitability after reaching a certain size and implementing strategic changes, like maximizing capital efficiency and introducing a gross margin validation step.”

custom-module 
Complicated Call-To-Action