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Photo courtesy Daniil Kirikov
Opinions expressed by Digital Journal contributors are their own.
The startup ecosystem is oversaturated with ventures in financial services, crypto, data analytics, and CRM. It’s well known that a significant portion of these businesses grapple with numerous challenges such as limited access to capital and the battle for profitability. As a result, we’re seeing an increasing number of startups resorting to workforce downsizing as a way to cut expenses and survive in these difficult times. As of now, according to Layoffs.fyi, over 200,000 employees, many of whom were part of buzzing startups, have been laid off since the beginning of 2023.
Despite this, “the rationale behind many investors’ beliefs is that the most promising firms take shape during economic downturns”, says Luxembourg-based Orbita Venture Studio’s Daniil Kirikov. “And the current trend goes beyond simply creating another digital SaaS product. It’s about finding innovative solutions to address longstanding challenges in more traditional industries like agriculture, manufacturing, and natural resources”, Kirikov states.
Leverage and Learn From Conservative Markets.
In the current economic scenario, there is a wealth of knowledge to be gained from traditional sectors like agriculture and manufacturing, Kirikov says. Known for their focus on profit indicators and efficient operations, these sectors offer invaluable lessons for new-age tech startups.
“Previously, young businesses might not have given importance to profit metrics. But with the current capital crunch, focusing on these metrics is vital”, maintains Kirikov.
The ongoing supply chain crisis and raising inflation are increasingly impacting these sectors, unveiling unique opportunities for tech startups to intervene and offer innovative solutions to pressing issues. According to Kirikov, startups can derive important lessons from these sectors while making a significant contribution to them.
Agriculture: a field for innovation
The agricultural sector is driven by the ever-growing global population and the resulting increase in food demand. The global human population is projected to expand by nearly 2 billion people over the next 30 years. “This presents huge potential for innovation and business success”, says Orbita Venture Studio’s Daniil Kirikov.
However, the recent surge in inflation has had a significant impact on agriculture, making it one of the industries that have been hit the hardest. In the UK, as per the Office for National Statistics, food prices witnessed a staggering 18.4% increase in the year leading up to May 2023. Likewise, the European Union is grappling with food inflation, still lingering at double digits.
To address these challenges, many farmers are turning to precision agriculture as a way to reduce operational expenses and boost crop yields. Kirikov points to a study by Emergen Research which indicates that the global crop monitoring market is poised for significant growth, with an anticipated market size of USD 5.99 billion by 2027 and a robust compound annual growth rate (CAGR) of 15.3% throughout the forecast period.
Moreover, a recent study by McKinsey reveals that over 60% of farmers in Europe and North America are currently utilizing or open to adopting technological innovations, even in the face of macroeconomic uncertainties. “This clearly indicates demand for solutions that entrepreneurs might offer if they decide to do business in conservative industries such as agriculture”, states Kirikov.
The adoption of technology in agriculture is an emerging trend that startup founders should not overlook, as evidenced by the recent acquisition of French AgTech firm Augmenta by CNH Industrial for a substantial €103.4 million in Q1 2023. This acquisition came after CNH Industrial became a minority equity shareholder in Augmenta and joined its board of directors in 2021. “This exit strategy of taking a minority holding and then fully acquiring a startup can be mutually beneficial for both founders and investors, especially as larger corporates look for efficiencies and startups seek liquidity”, Kirikov says.
Mining and metals: Untapped Potential
As the world’s population grows, so does the demand for metals and minerals. The mining and metals sector plays a crucial role in supporting various industries worldwide, from infrastructure and transportation to technology and agriculture, by providing the essential materials for their products. Often overlooked due to environmental concerns and the drive towards a greener economy, the mining and metals sector holds untapped potential.
A recent study by Deloitte suggests that blockchain technology has the potential to enhance transparency in global supply chains for metals and minerals. “Currently, these transactions rely heavily on paper-based processes or fragmented solutions, which are prone to duplication and fraud. Implementing blockchain can address these issues and improve the traceability and integrity of the supply chain”, Kirikov points out.
Another opportunity lies in the increasing demand for metals driven by the transition to a greener economy. McKinsey projects that by 2030, the demand for metals such as lithium, nickel, and copper could be two to twelve times higher than current levels. “This shift is expected to pave the way for startups to introduce technology-driven solutions that enhance efficiency, sustainability, and productivity in the sector”, maintains Kirikov.
Rules for Success in Conservative Markets.
Orbita Venture Studio’s Daniil Kirikov suggests the following algorithm of evaluating business ideas in conservative markets:
“Start by identifying the genuine problem that lacks an existing solution and whether there are currently any solutions for which people are willing to pay. Next, consider which technologies can currently solve the problem, taking into account any changes that have occurred over the past 5 years. Think of the specific aspects that can be optimized or improved. Keep in mind that the improvement should be significant, rather than just a minor 20% enhancement, that won’t cut it when competing with larger, resource-rich businesses”.
If you have answers to these three questions, it is worth creating an MVP and exploring its market potential, says Kirikov. Yet he warns that sales cycles in traditional markets tend to be longer than in new-age sectors, which is why entrepreneurs should “plan unit economics accordingly”.
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