Entrepreneur’s Dilemma: The Great Game Theory of Business

They say a “black swan” is a once-in-a-lifetime event. But now? It seems like we’re seeing one every decade:

• Popping the dot-com bubble (2000)
• The global financial crisis (2008)
• COVID-19 market crash (2020)

Even more fascinating than the events themselves is how the economy responded. The house always wins, as they say—and in corporate America, the house won by rewriting the rulebook. 

Several times.

Rulebook 1: The “Growth at All Costs” Era

2021 is probably still fresh in every entrepreneur and VC investor’s mind. That’s because the playbook was simple: Grow your venture—profit be damned.

The entrepreneurial landscape of this time was flush with cash, driven by stimulus packages, PPP ‘loans’ never to see repayment, and of course, ultra-low interest rates.

Entrepreneurs at this time optimized their businesses for:

• Revenue growth – Access to cheap capital amidst burgeoning demand meant many businesses prioritized top-line expansion. The speed at which a business could grow this revenue indicated momentum, even as it reached terminal velocity.

• MRR and ARR – Monthly and annual recurring revenue quickly became a north star for SaaS companies, which cropped up to fill the needs of a digital-first world in lockdown. 
• Revenue retention – Some of the savvier investors, while still eager to ride the cash influx, began to focus on long-term viability. This metric gained particular attention as the subscription-based model exploded in popularity.

2021 was the peak for VC funding, hitting a world-shattering record of $344.7 billion. Anyone off the street with a pitch deck and winning smile could raise millions in capital. Reinvesting every penny was the play, and it was chic for startups to run in the red.

Well, we know how that went. As the old saying goes, “What goes up… must come down.”

Rulebook 2: Transitioning to Steady, Disciplined Profitability 

And come down it did. Hard.

The Fed dropped the hammer in 2022–2023, with consecutive interest rate hikes to curb the inflation brought on by the tidal wave of fiscal support. 

Now, the rule set favored a new approach: Discipline. A new set of metrics emerged as the ideal means to measure growth:

• Free cash flow versus revenue – While revenue demonstrated momentum, positive free cash flow indicated value. This metric represented a more fundamental marker for success, especially in Series C+ and pre-IPO discussions.

• Emphasis on EBITDA – Signaling another return to traditional business metrics, EBITDA margins stripped away the noise to demonstrate operational profitability, sans the glitter that often gilded money-hungry (but structurally unsound) startups.
• Rocking a strong ROIC –Return on invested capital (ROIC) gained renewed attention to measure shareholder returns, which could attract fresh capital even amidst the dry spell.

In short: Ideas grew cheap—execution became everything. 

Now, only a proven path to profit could attract even a sliver of outside investment. Everyone clutched their pearls to their chest as they found shelter in an almighty dollar, leaving risk-heavy investments to crash and burn.