Capital efficiency in startups: what does regaining control of your runway really involve? 

On 17 March 2023, The New Zealand Herald published the ominous headline: "Jobs Could Be on the Line for Hawke’s Bay Re-Leased Staff." Fast forward 18 months, and the tone was drastically different with the startup making waves in the NBR with this cracker: "Re-Leased Raises US$12.5m in a Round Led by Movac."

How did they pull off such a dramatic turnaround? What changed? 

Over the past year, Re-Leased has been laser-focused on capital efficiency and operational effectiveness. Pair that with strategic product investment, and the results speak for themselves — a rent roll of US$7.5 billion, 1,400 customers, and major investor confidence.

We sat down with Re-Leased’s Founder Tom Wallace and the startup’s CRO Dai Williams for some (unfiltered) advice for startups looking to regain control of their capital efficiency*. (*The advice given below is given with the utmost respect paid to team members past and present who have all played a key role in the turnaround.)

Q: What are the signs that you may be entering dangerous waters?

Tom: The first red flag is often your runway. Close oversight of your financial runway is critical. Your burn rate should match the economic environment and the unique challenges within your industry. High growth ambitions coupled to a high burn rate in a conservative market could be a dangerous mix; while being overly conservative in a bull market may mean you’re missing out on any potential upside, affecting future investment and even the success of your exit.

Dai: When you miss a milestone set out in your fiscal plan - and your unit economics start to flag - that’s the moment that signals the need to re-examine. Knowing what we know now, we’re big advocates of having honest conversations early on where you ask the team: "Is this misalignment a once-off, or a pattern?" Ignoring early warning signs often leads to a need to make deeper cuts or take more drastic measures later on because you didn’t act decisively enough. Get ahead of the game with tough conversations now, so you're not facing harsher decisions in the future.

Q What are some key ingredients of a successful realignment? 

Emotionally - understand the people impacts and get it right the first time.

Tom: Realignment isn’t a simple process. It has significant implications for your team, and the uncertainty it brings can create real unrest and distraction for your team. We wanted to get it right the first time because we’d seen other companies go through wave after wave of restructures. We didn’t want to be in exactly the same place in 12 months.

Re-Leased opted for a one-time, well-considered realignment that saw us make difficult but necessary reductions ahead of our peers. This strategic foresight allowed us to rebound quickly, outpacing those who might have delayed taking similar actions. It was also our way of respecting that a business is built around people - and losing their trust through drawn-out uncertainty can be devastating.

Business capability - understand where your bottom is and cut deep enough for a significant uplift.

Dai: When facing the reality of the market, Re-Leased focused on figuring out where the bottom was i.e. where were we; and what did we need to do to ensure turnaround was immediate, effective and would set us on a growth trajectory? Our approach was to cut to the muscle; but not the bone. We needed enough of our team and core business functions left to ensure we had a lean but powerful operation going forward. When you do this, acceleration on the other side is quicker than if you’re making guesses about the effects of different actions. We’re happy with the shape of our business now and feel we got the balance right. 

Some practical tips for making budget cuts?

Decide what kind of business you want to be after realignment

Dai: In times of free-flowing capital, companies tend to make speculative bets on products and ideas. But when it’s time to realign, that’s when you need to focus on your core product and ensure that’s unshakeable. Think about what kind of business you want to be after the storm passes - this will help you prioritise capabilities and dial back on the areas that don’t align with that vision.In general, it’s never a good idea to compromising on product (R&D to a lesser degree); but marketing and speculative investments can take a back seat when needed.

Look at all levers, not just your salary bill

Tom: While salary costs are often the first to be considered for reduction, true capital efficiency comes from examining all potential ‘leaks’. Re-Leased took a magnifying glass to systems that had bloated over the years - reducing redundancies and overlap in HR software, cutting unnecessary software tools, and even shaving NZ$100k off our monthly hosting costs without affecting performance. These decisions are nuanced; it’s never about cutting for the sake of cutting, but finding the areas where real efficiency can be gained.

Anything surprising about the realignment process?

Tom: The resilience of the Re-Leased team was the standout. Once the shock had passed, our team rallied behind the mission. They understood the ‘why’ behind the change and worked with us to make the right calls.

Eighteen months later, employee satisfaction and retention are at an all-time high, and the company is running with a lean, highly efficient team. For Re-Leased, the tough decisions led to not only a healthier balance sheet but a stronger, more motivated workforce.