Promising startups suffer as profit trumps growth

• Published date: 17 April 2024
• Author: Assaf Gilead
• Publication title: Globes (Rishon LeZion, Israel)

Layoffs and lower valuations

Since being included in Globes' promising startups list in previous years, many companies have been forced to recalculate their course with the rise in interest rates and the cooling of the economy and tech industry. StuffThatWorks, which was ranked sixth in 2021, was founded by CEO Yael Elish, former head of product at Waze. When Waze was sold to Google she sought through StuffThatWorks to help the chronically ill to find treatments and drugs through crowdfunding and AI. But it soon became clear that the model was built for the age of low interest rates and revenue was slow to come. Now the company is trying to build a similar engine based on collaboration with pharmaceutical companies and institutions.

Snappy, which has developed a platform to provide gifts for employees of large companies, was ranked ninth in 2020. In mid-2022 when the tech crisis struck, the company was forced to lay off one third of its employees, and recently was forced to cut its valuation in half to complete a financing round. But the company has renewed its management and expanded to new products. CEO Hani Goldstein has hired VPs from US companies and launched a new service to provide gifts to employees and to order marketing gifts for conferences and events. The company returned to growth last year of 40%, with annual revenue of about $30 million.

One of the lessons that Snappy learned during the crisis is the need to convert its service from one based on human client portfolio management to an online self-service system. This business model, known as self-served, has become particularly popular with Israeli startups over the last two years: a website that provides an online service not only requires a smaller workforce, it is also the key to faster adoption of services by customers. For Israeli companies, such a service also reduces the friction between Israeli or Israel-based staff and foreign markets, such as for example in Arab or Muslim countries.

This was a lesson that was also learned by Pecan AI, which ranked tenth in 2022, but was subsequently forced to lay off 60 employees in two waves and terminate agreements with non-profitable customers. Pecan AI has developed software based on machine learning algorithms that scan the data of client companies and extract analytical insights, with the aim of saving them data analysts. In the last year, the company focused on the launch of OpenAI's ChatGPT-based chatbot, and on an online self-service...