A CEO who laid off 15% of staff says: ‘The economic environment is changing for all startups’

'The economic environment is changing for all startups'

A chill wind is blowing through the world of startups right now.

If 2015 was the year of the unicorn, 2016 looks like it could be the year of down rounds — where startups raise money at a lower valuation — and cutbacks.

Stats on venture capital funding into fintech (financial technology) startups released by KPMG and CB Insights this week show a steep drop-off in funding at the end of last year and Bloomberg on Friday also reported a “pullback in startup investing.”

“We have to be focused on the fact that the economic environment is changing for all startups,” Katia Beauchamp, CEO and founder of subscription beauty service Birchbox, told Business Insider recently.

“We want to make sure that we are mindful and that we keep in front of that and we’re ready to weather whatever this is.”

Birchbox laid off 45 people — 15% of its global workforce — and shut its business in Canada last month. Beauchamp says the cuts were “extremely hard” and were in part due to the venture capital purse strings tightening over recent months.

Beauchamp says: “There is a contraction in people’s willingness to invest in companies and people’s willingness to invest in growth. What this allows us to be is in control of our destiny instead of reliant on additional outside capital.”

Other tech companies are having to make similarly tough decisions right now. Event discovery app last month YPlan cut 30% of staff and SurveyMonkey in the US is cutting 100 staff. In the UK, payments business Powa Technologies last month collapsed after running out of money.

On the Canada pullback, Beauchamp says: “Nothing went wrong. We wanted to set up shop there. But given the way we wanted to be capitalised in the US and Europe we didn’t feel it was the right time to invest that in Canada and, therefore, we couldn’t offer the customers the service they deserved. Our plans had to adapt as the market shifted.”

But Beauchamp adds that the cuts are not just a funding issue — they also reflect the fast changing market: “It’s not just something that Birchbox faces, it’s the reality that if we want to stay ahead of where people are spending their time, spending their energy, spending their money, we have to continue to evolve how we do it.”

Birchbox sends customers a monthly box of personalised make up samples, letting them test out products. As well as its subscription model, it has an online store so customers can buy full-sized versions of the products they like.

“We raised money in September 2010 and we hit out 5-year target in 7 months,” Beauchamp says. “We were really off. The reason was really simple. Everybody told us, nobody will pay for samples. We said, people will pay for samples if you make samples valuable — the right products personalised for the right people.

“But, given nobody had paid for them yet, we thought it would take time to convince people. We were wrong. The consumer was like, yeah, I will totally pay for samples.”

Now the company has over 1 million subscribers and operates in the UK, France, and Spain, as well as the UK. Beauchamp says the UK business is doubling in size each year and the French business is growing at a similar rate. Birchbox works with over 500 brands worldwide and 200 in the UK.

The company recently launched its own line of seasonal beauty products called Love of Colour in the UK but Beauchamp says the company is happy to stick for beauty for now — no branching out to fitness or health products.

“We think the opportunity in beauty is really massive and extremely long term for Birchbox,” says Beauchamps. “We really do believe we have something extremely special by bringing the beauty industry online. Every woman wants to be their best self.”

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