July 10, 2023: As the market changes again, this is our advice

What exactly is happening?

Two Toronto start-ups that have previously raised massive rounds are in the news for less fun reasons. So, what are they?

The G&M had two separate articles dealing with the shrinking employee count and tough future for Ritual and Properly.

For Ritual it discussed how the company laid off 40% of employees bringing its employee base to 23 from a peak of 300. For Properly the main news discussed by the G&M is that the company has hired investment banker Raymond James to consider options including a sale and half of its staff that it did at its peak.

How did both companies get to this place, and what happened?

Ritual, which helps people skip the line at restaurants, was flying high prior to Covid and has never fully recovered as employees continue to work remotely. This has been a slow decline as the company has introduced new products and tried to find ways to re-ignite growth but has not found anything as successful as their first product. According to the G&M Ritual which has raised $135m USD to date now has <$10.2m on its balance sheet and is losing $2m+ a quarter. As such, it is most likely making these layoffs to further its runway and give it time to reignite growth.

Properly, which is a digital first real estate broker, found success by offering a product called sales assurance during COVID. As the Canadian real estate market has cooled off, Properly had two headwinds to content with. Lower transaction overall for the market and its main point of distinction was dropped as it was unfeasible to offer. This has most likely resulted in slower or negative growth and investors are encouraging the company to figure out the best economic way forward.

One could argue that both companies have been hit my significant market headwinds which make it difficult as startups need growth to be relevant. If you ask around the ecosystem you make hear that both of the companies had a thin tech enabled advantage and used market positioning and execution to succeed and therefore the moats weren't sustainable.

What can we learn from this?

Startups are all about growth and when they are growing they raise large rounds at large valuations and hire fast. Eventually that growth either turns into long-term sustainable advantage which produces cash flow or stops and the flywheel effect reverses which results in layoffs and falling valuations. Many people celebrate funding announcements but forget until cashflow is repeatable start-ups are fragile.

To succeed a startup needs to do many things:

• Build a successful go-to-market which includes positioning both Ritual and Properly had this.

• Continuously evolve with your market - both companies tried to this and it is hard

• Build a long term sustainable moat - there are many ways to do this - investors prefer ones that are based on network effects or providing a crucial service that customers could not live with out that are supplemented by execution, brand and positioning - it is not clear if either Ritual or Properly accomplished this.

Founders get a let of glory and attention which seems great and unfair but they also suffer the most when companies are not doing well. We should applaud the founders that stick it out, continue to fight the battle and try to do whats best for all their stakeholders.

What does it take to build a successful moat? We want to know from you. Reply to this email and we’ll create a brand new Founder FAQ using your feedback.

^{Listen to this and other stories from the past few weeks on the latest episode of TechTO Quick Takes - new episode drops this week!}

Another episode of Founders Journey just dropped! Make sure you like and subscribe wherever you are listening

Grow the puzzle around you | Great advice from a top co-founder

The Slow Ventures GP on philosophy, empowering metrics, AI hype, and John Wick

The ultimate path to product market fit

How to optimize your pricing page

Senior/Staff Front-end Engineer, ClickUp (Canada)

Why is this cool? ClickUp is the world's only all-in-one productivity platform that flexes to the way people want to work. It replaces all individual workplace productivity tools with a single, unified platform including project management, document collaboration, spreadsheets, chat, goals, and more. In this role, you will be responsible for setting the overall vision for our front-end application and enforcing standards around front-end software development.

*Reply to this email and let us know the jobs you'd like to see

• TechTO: Together | TONIGHT | July 10, 2023: TechTO: Together returns with another outstanding line-up of speakers, great networking, and the famous afterparty you love!

• TechTO: Montreal | July 13, 2023: We’re back in Montreal to kick off Startup Fest. Will you be there?

• Startup Fest | July 12 - 15, 2023: Get a 15% discount here

Want to showcase your company, events, and opportunities to 60,000+ subscribers across the Canadian Tech Eco-system? Reach out to [email protected] to learn more4