I smiled, but inwardly, I winced.

It wasn’t the confidence that bothered me, it was the maths. The kind of maths that turns startup founders into debtors. Because behind every vanity metric is a hard truth. And here’s one that’s difficult to ignore:

90% of startups fail.

Nearly half collapse because they misread market demand. Not because they didn’t dream big. Not because their logo wasn’t trendy. But because they didn’t understand what the numbers were really saying.

At a stage where global venture funding dropped to $66.5 billion in Q3 2024, the lowest in three years, investors are buying proof, not dreams and visions. And if your startup can’t show that it earns more than it spends, you’re not in the game. You’re in a countdown.

Welcome to the end of “burn and brag.” Welcome to the new economy: earn, or exit.

Understanding the Core: What Unit Economics Actually Means

Let’s not get tangled in complex languages. Unit economics is just a way of asking two questions:

1. How much does it cost you to get one customer?
   (That’s Customer Acquisition Cost — CAC)
2. How much money will that customer bring you over their lifetime?
   (That’s Lifetime Value — LTV)

If your CAC is ₦15,000 and your LTV is ₦10,000, then congratulations, you’re spending ₦5,000 to lose a customer. Multiply that by 1,000 users and you’re running a charity, not a business.

Many Nigerian startups are walking this road. High marketing costs, weak retention, and poor product-market fit stretch CAC to breaking point. Meanwhile, LTV is crushed by churn, pricing issues, or over-reliance on freemium models that never convert.

Startups that fail to balance CAC and LTV almost always struggle with long-term profitability. And in this funding space, that’s beyond a delay; we can call it a death sentence.

The Collapse of “Grow Now, Monetise Later”

This model worked… once. A few years ago, if you showed rapid user growth, VCs would line up to invest. Profits? Not urgent. Just promise them a hockey stick graph and expansion plans into six African countries.

But the tide has turned.

Global venture capitalists are careful.
Investors are tired of exits that never come.
Unicorns are being questioned.

There are 1,565 unicorns globally. Many of them are now being pressured by investors to justify their lofty valuations. Some are laying off staff. Others are “restructuring”, a polite word for panic.

We’ve also seen this locally. Think about 54gene. It raised millions, expanded fast, then imploded. Why? Not just market challenges. They scaled before they nailed their business model.

And as Sequoia Capital said, “The market isn’t rewarding growth at all costs like it did in years past.”

“Companies who move the quickest have the most runway and are most likely to avoid the death spiral.”

“Hope for the best, but prepare for the worst.”

How to Fix Your Unit Economics Before it Kills Your Startup

The transition to solid economics is painful, yes. But it’s necessary. Here’s how founders can stop losing it:

1. Lower Your CAC, or Die Trying

Stop throwing money at ads that don’t convert. Referral systems, partnerships, community-led growth; these are more efficient. Know what works. Kill what doesn’t.

2. Increase LTV by Solving Actual Problems

If customers drop off after one month, your product has no stickiness. Improve value. Add retention features. Make people need you, not just try you.

3. Watch Your Margins Like a Hawk

What does it really cost you to deliver the product? If your margins are thin, scale makes it worse, not better.

4. Track Payback Period Relentlessly

How fast do you recover CAC? If it takes two years, you’re burning runway on wishful thinking.

5. Kill the Ego Metrics

Downloads, followers, media features; none of these pay salaries. Focus on revenue, retention, and repeatability.

We can’t keep building business models that need ₦1 billion in marketing to make ₦500 million in revenue.

Scale is a Privilege, Not a Right

Scaling isn’t a goal. It’s a reward for getting the fundamentals right.

A product that works in Yaba won’t magically work in Nairobi or Accra. Not if you’ve skipped the hard work of validating value. When you scale a broken business model, you scale the loss. Ask any founder who expanded too soon.

Y Combinator once warned, 

“Make something people want.”

“Stay lean and iterate fast.”

“Survival is the first priority.”

What Investors are Really Looking for Now

Startups that survive the next phase will be the ones who stop performing for investors and start performing for customers.

Investors today want:

• Positive contribution margins
• Clear LTV > CAC ratios
• 18 to 24 months of runway
• Evidence of product-market fit before scale

And here’s the irony: Only 18% of first-time founders succeed. Those with one failed company under their belt? 20% success rate. Failure educates. But why not skip the tuition fees by learning what matters now?

The Future is More Focused

The focus on unit economics is not the end of ambition. It’s the start of maturity. Investors are not rejecting innovation, it’s the waste they are rejecting.

We’re moving towards a startup ecosystem that prioritises fundamentals over fireworks. I welcome it.

If you’re a founder, it’s time to stop asking, “How do I raise my next round?”
Start asking, “How do I make this business make sense, without burning everything?”

Because in this new normal, burning money is not commended, it can be reckless. Profitability is not old-fashioned; it’s the future.

And for startups in Nigeria, where capital is scarce and unpredictability is plenty, understanding and acting on your unit economics is indispensable, not optional.

Titled “Why Are Startups Failing: Building a Strong Compliance Culture,” the session aimed to analyze the challenges faced by startups and the importance of facilitating a competitive compliance culture for their success.

Throughout the session, various panellists shared their perspectives on key challenges faced by startups. Four critical areas of support for startups: product, talent, distribution, and funding, were reiterated. Pointing to the changing dynamics of funding, startups were encouraged to think differently about profitability and growth. The expansion of investor interest beyond the tech space was noted, with a shift towards verticals like education.

The discussion extended to challenges in talent acquisition, where human error and high costs were identified. Startups were urged to focus on collaborations for regional expansion and user growth as well as the need for a deep understanding of business economics and differentiation in the market, was stressed.

Challenges faced by companies that might be trending toward failure were also discussed. The importance of solving real-world problems and adapting to changing circumstances was highlighted. The conversation acknowledged that, while some companies might cease to exist, the overall ecosystem presents abundant opportunities for new solutions.

The dialogue then shifted towards the regulatory space in Nigeria, addressing compliance challenges. The lack of clarity around regulations, bureaucratic hurdles in dealing with government regulatory services, and the high cost of compliance were discussed. The need for startups to prioritize compliance and due process was also emphasized.

In a legal perspective, lessons learned from startups that faced compliance issues was a major pointer. Examples were given, including the revocation of licenses by the Central Bank of Nigeria (CBN) affecting fintechs. The importance of caution, diversification, and ethical considerations in navigating regulatory challenges.

A legal expert provided insights into setting up a strong compliance culture. The importance of engagement with regulators, having tailored policies and procedures, and gradually scaling compliance efforts were emphasized. The role of compliance in building trust with customers, preventing fines, and gaining investor confidence was highlighted.

Investors often view a startup’s compliance practices as an important factor when considering investments. 

Here are some key points from an investor’s perspective:

1. Risk Mitigation: Investors seek startups with strong compliance structures as it minimizes legal and regulatory risks. A well-managed compliance framework demonstrates a commitment to ethical business practices and adherence to laws, reducing the chances of legal issues that could impact the investment.
2. Long-Term Viability: Compliance is seen as integral to a startup’s long-term success. Investors are more likely to invest in companies that show a commitment to sustainable and ethical business operations. This is significant for building trust not only with regulators but also with customers and other stakeholders.
3. Market Expansion: Startups that are compliant with relevant regulations are better positioned for market expansion. Investors are interested in companies that can drive regulatory space effectively, especially when planning to scale operations or enter new markets.
4. Financial Integrity: Compliance practices often reflect a startup’s financial integrity. Investors look for transparent financial reporting, adherence to accounting standards, and a clear understanding of the financial implications of compliance. This contributes to building trust in the startup’s financial management.
5. Due Diligence: During the due diligence process, investors assess a startup’s compliance history. Any past legal or regulatory issues may raise concerns and potentially affect the investment decision. Therefore, startups with a clean compliance record are generally more attractive to investors.
6. Adaptability to Change: Regulations can evolve, and investors value startups that show adaptability to changing compliance requirements. This includes having mechanisms in place to stay informed about regulatory changes and adjusting business practices accordingly.
7. Ethical Considerations: Ethical business conduct is becoming increasingly important for investors. They are more likely to invest in startups that not only meet legal requirements but also align with ethical standards and social responsibility. Compliance with environmental, social, and governance (ESG) criteria is gaining prominence.

In summary, startups that prioritize and effectively manage compliance are viewed more favourably by investors. This not only mitigates risks but also contributes to building a foundation for sustainable growth and long-term success.

The panellists and speakers at the U-Law Black Friday 7.0 event provided a comprehensive overview of the challenges startups face, the significance of compliance, and strategies to build a resilient business structure. The insights shared aimed to guide startups in striving through the complex terrain of regulations and enabling a culture that promotes long-term success.