In 2020, at the height of the Covid pandemic, event management software company Bizzabo was ranked first in "Globes'" list of the most promising startups in Israel, partly thanks to its being an Israeli investor favorite. Only a few months earlier, the company had laid off about a fifth of its employees because of the pandemic, but very quickly its founders realized they were sitting on a goldmine: Bizzabo’s income doubled and charted an annual run rate in the tens of millions of dollars thanks to the sudden demand for virtual conferences.
In November that same year, the company raised $138 million and the future seemed bright. But CEO Eran Ben-Shushan expressed caution: he predicted that physical conferences would make a comeback, but hypothesized that Covid-19 had established the concept of hybrid events, hosting a limited number of participants at a venue and a larger number online.
Reality, however, had other plans. Once the pandemic was over, to compensate themselves for having had to stay at home for so long, many workers went on a travel blitz, both business and private. Bizzabo used the huge amount of funds it had raised to make four acquisitions, but the field has become far more competitive with the entry of more video conferencing companies such as Zoom and Israel’s own Kaltura. Bizzabo, which relies on clients from a hurting high-tech industry, found itself in a crowded competitive arena.
Last July, Bizzabo fired 120 employees, about 30% of its workforce, but it claims this was not because of cancelled conferences, but as part of its preparation for the coming economic winter. In early December, it decided on another wave of layoffs, 100 people this time. Thus, in under a year, the company downsized from a staff of 400 to just 160.
Although Ben-Shushan's vision of hybrid conferences has not yet come to pass, the company still has an advantage over most other virtual conference companies: its foothold in the in-person conference space.
Bizzabo is down but not out. It’s story is the tale of every Israeli tech company, not everywhere on the same dramatic scale, and it could be that Bizzabo will emerge from the crisis stronger. It is currently curtailing high-risk future activities, withdrawing from unprofitable areas, and beginning to charge for services previously offered for free.
Restructuring
Bizzabo was not the only "working from home" company to rank high and then experience a shakeup when things went back to normal. Fabric, Elementor, Lightricks, StreamElements were all high-ranking companies on the "Globes" list in recent years, and all took advantage of the global economic crisis to restructure, for better or for worse. "As an industry, we became confused and forgot how difficult it actually is to succeed," an investor in one of the companies forced to lay off staff, (who chose to remain anonymous), told "Globes". "Only now are entrepreneurs beginning to internalize something that previous generations already knew: being a startup is hard. There was a feeling that everything was going easily, but, in the end, results are the only thing that count. You have to work hard to disrupt an industry, and there’s no guarantee that your company will succeed."
Facetune, the popular photo-editing application from Jerusalem-based Lightricks, which also ranked high on the "Globes" list four years ago, served young people stuck at home who kept busy by tweaking their selfies. Now, after things have gone back to normal, the company’s management has concluded that a strategic shift is necessary. Lightricks’ new focus is on providing design and production tools to online influencers.
But the creative field is also in difficulties as marketing budgets tighten because of the deepening economic crisis, which is making major companies cut back on advertising expenditure. p>For this reason, last June, StreamElements, an Israeli platform that enables gaming and entertainment influencers to generate advertising revenue, had to let go several dozen offshore employees and relocate others - despite continued growth in revenue and in the number of content creators on the platform. The company took fourth place on the "Globes" list last year.
JoyTunes became a sensation during the Covid-19 period, thanks to millions of users who downloaded its application for learning to play the piano and guitar at home. In June 2021, the company raised $50 million at a $1 billion valuation and changed its name to "Simply", and it now produces training apps for singing, painting and, in the future, cooking and dancing. Unlike other Israeli app developers, the company did not undergo a substantial upheaval - its staff actually doubled this year - but the end of lockdown served as a wake-up call to expand the business model.
Cutbacks mainly in marketing
End-consumer providers are not the only companies affected by the crisis, of course. Shrinking procurement budgets are also causing tech service providers to cut back. After the pandemic, Elementor, the WordPress-based website building platform, had to cut hundreds of marketing employees; this after two years of growth thanks to small businesses that launched online sales websites during lockdown. However, Elementor’s reliance on WordPress, with its weaknesses, and a business model that depended on open-source code and freeware services, brought about a rethink of the company’s course and a decision to seek out new avenues of profitability.
DataRails, developer of a product that saves financial managers from the cumbersome manual accounting that is widespread at medium-sized enterprises, also chose to reduce its marketing and sales staff - mainly in the US - and it moved its marketing call center to the Philippines. DataRails is another example of a company that is preparing for an economic crisis but that continues to grow: its growth rate fell from 5x last year to just 3.5x this year.
Part of the current growth comes precisely from companies that choose to streamline by using DataRails’ product to lay off those junior employees doing the manual accounts, but it seems that no company is immune to the economic crisis, not even DataRails, which topped last year’s list of most promising companies.
"There is something liberating about this new situation, despite it being depressing," one entrepreneur who initiated a wave of layoffs, (and who declined to be identified by name), told "Globes". "Last year we were under enormous pressure from our competitors to be like them: to raise huge amounts of capital like them and grow like them. We felt we couldn’t afford to be left behind."
Companies that the crisis has helped
The economic crisis has hurt some companies, but it has provided a golden opportunity for others. Take Fabric, for example, ranked third on "Globes" list of most promising companies in 2017. Its business model, which was based on grocery chains constructing robotic warehouses in urban centers, turned out to be expensive and loss-making. The company decided to pivot to supplying robots and robotics services instead. Trigo, which ranked sixth on the "Globes" list for 2019, is another company that took advantage of the crisis. The company enables large retail chains to automate by providing touch-free cashier-less checkout, and also optimizes the online order delivery process by ensuring item availability through photo identification of in-store inventory. Last October, Trigo raised $100 million.
Among the outstanding companies of years gone by are many more that took advantage of the opportunities latent in the crisis. Monday.com managed to grow beyond market expectations and even reported positive earnings per share, despite expectations of losses. The entrepreneurs behind Granulate, the information monitoring company that helps organizations save on cloud computing costs, decided to sell in time, and a few weeks before the layoff wave, made a huge $650 million exit to Intel.
The company remains an independent business unit within Intel, and since the acquisition it has grown by 60 employees, working daily on data and software products with Intel's 10,000 software engineers.
Connecteam, which took second place in last year's ranking, has benefitted from the upheaval that has affected not only its target market, but also its competitors. The internal communication and employee shift management application developer managed to raise a huge funding round at the beginning of the crisis at what was, at that time, considered a relatively low valuation. It raised $120 million at a valuation of $800 million, according to PitchBook. Today, Connecteam benefits mainly from weakness on the part of its US competitors, and from the motivation on the part of enterprises to cut costs. Its system can replace up to seven other systems at an enterprise, including shift management, communication, and digital signatures. Although this is no longer a popular practice among startup companies, Connecteam is putting money into subsidizing customers and capturing market share from its now-weakened competition.
The Most Promising Startups rankings are part of the annual Enterprise Technology Summit held by "Globes" and JP Morgan.
Published by Globes, Israel business news - en.globes.co.il - on December 14, 2022.
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