Startups Slow Growth Plans, Hire Remotely as Funding Stalls

Nearly 2 in 3 startup founders and CEOs (63%) say their business has declined or stalled due to the pandemic, according to new research from Qualtrics’ (Nasdaq: XM) Delighted. The economic pullback is slowing hiring growth among startups — only one in three (32%) is planning to grow its employee base by 10% or more this year, and 12% plan to pause hiring or even downsize.

Startups have felt the pain of an economy stretched by the global pandemic, inflation, and the war in Ukraine. IPOs are being put on hold, funding is drying up and investors and boards are looking at companies more critically, asking them to use their funding more efficiently. During downturns, organizations are forced to intensely focus on what’s most important. Every company is trying to find and keep customers, and startups feel times of uncertainty even more acutely than larger, more established companies.

The current fundraising environment is keeping startup founders and CEOs up at night

Most (88%) startup founders are worried about the current fundraising environment and ranked a lack of operating funds as their top challenge for this year, followed by lacking product market fit and talent acquisition. Additionally, startup founders said their investors are putting the most pressure on them to improve their tech infrastructure and simplify their supply chains, ranking those investor priorities above even achieving profitability and improving their pace of innovation.

“It was easy for startups to raise capital in recent years as markets valued growth over profitability,” said Qualtrics’ Delighted CEO, Caleb Elston. “During an economic shift or downturn, knowing what matters most to customers is mission critical. The companies that get that right — quickly — stand to pick up outsize gains in market share, and experience management is at the center of getting it right.”

Startups are focused on improving the customer experience and investing in their technology infrastructure over the next 6 months

In the face of these pressures from investors, startup founders ranked improving their customer experience and investing in technology as their two highest priorities for the next 6 months, above customer acquisition, securing funding, and acquiring talent. With investors putting more value in business models and capital efficiency, startups are focused on reducing friction and better understanding how to serve their customers.

Startups are planning to hire remote workers in less expensive markets and raise current employee salaries

Despite setbacks from the pandemic, many startups are still planning to pay current and future employees more in both salary (49%) and bonuses (43%). However, 1 in 4 startups say they plan to hire remotely in less expensive markets, potentially to offset some of these other pay increases. Most startups will operate under a hybrid model this year — 78% will be fully remote or hybrid for the remainder of 2022. A majority (68%) of startups said improving the diversity of their teams is a very important focus area this year.

Inflation is a growing concern

Eight out of 10 founders are worried about the rising cost of doing business due to inflation and most (79%) plan to raise the prices of their product or service in the next three months to combat inflation and rising costs.

With the uncertainty and volatility of the markets putting many IPO plans on hold, only 3.2% of startups surveyed were planning for an IPO. For tech startups, it’s slightly higher at 4.9%. For most startups — across all industries — M&A is the most commonly planned exit strategy (32%) followed by family succession (24%) and management and employee buyouts.

Methodology:

This study was fielded between April 6 and April 11, 2022. Respondents were selected from a randomized panel and considered eligible if they live in the United States, are at least 18 years of age, employed full-time, self-identified as a co-founder, founder or CEO and self-identified as having taken VC funding for their current company. The total number of respondents was 251. Respondents who did not pass quality standards were removed. See additional research results on the Delighted blog.

Qualtrics’ Delighted:

Acquired by Qualtrics in 2018, Delighted is one of the fastest and easiest ways to collect and act on customer feedback. Startups worldwide use Delighted to stand up multichannel NPS, Product Market Fit, and CSAT feedback programs in minutes. Learn more about Delighted solutions for startups here.

About Qualtrics

Qualtrics, the leader and creator of the Experience Management (XM) category, is changing the way organizations manage and improve the four core experiences of business — customer, employee, product and brand. Over 16,750 organizations around the world use Qualtrics to listen, understand and take action on experience data (X-data™) — the beliefs, emotions and intentions that tell you why things are happening, and what to do about it. The Qualtrics XM Platform™ is a system of action that helps businesses attract customers who stay longer and buy more, engage employees who build a positive culture, develop breakthrough products people love and build a brand people are passionate about. To learn more, please visit qualtrics.com.

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