The Hidden Costs of Ignoring Cash Flow: A Call for Strategic Requirements Prioritization at Startups During an Era of Rising Interest Rates
Frédéric Pattyn · 2023
Cash flow management, a key factor in 82% of startup failures, has surprisingly only been referenced once as a criterion for Requirements Prioritization (RP) in a 1983 study. Only 5 studies have been identified that consider one or more financial ratios during RP. Therefore it's fair to state that this type of RP criteria is underrepresented. The current financial climate is marked by a steady rise in interest rates the past two years, reaching a peak unseen in previous decade. Consequently, investors have become more discerning, no longer investing hastily into software startups at the first glimpse of traction or user growth. There is a renewed emphasis on financial health. Therefore adept cash flow management is top of mind again as a pivotal consideration by private equity investors. Should startups persist in their currently employed RP criteria, the 63% failure rate is set to rise due to funding difficulties tied to an overemphasis on growth and user value, rather than cash flow as RP criterion. To address this, future research should aim to evolve prioritization methods to enhance early-stage decision-making and increase startup success rates. This study not only has practical implications for startups but also paves the way for further collaborative academic research in Requirements Engineering (RE) and contributes to the creation of the first academically supported Pragmatic Framework for Product Managers (PFPM) at Software Startups.