startup crisis

What Should Startups Do in Times of Crisis?

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As the SARS-CoV-2 outbreak is running its course, it’s becoming clear that we’re entering into a new age of recession. It’s hard to predict its degree today, but experts agree that it will surpass the recession of 2008.

What can startups do right now to prepare themselves for the upcoming hard times? Here’s a handful of tips for startup founders looking to keep their businesses afloat in 2020 and beyond.

What startup founders are facing today

The spread of COVID-19 and ensuing economic lockdowns implemented by governments all over the world have made the spring of 2020 a very difficult time for every business out there.

But startups, per definition, had less time and fewer opportunities to create their status in their industries, achieve a positive cash flow, and build up some financial reserves. Being used to the availability of funding is also something that might work against startups. In times of higher risk, obtaining funding might cost more equity than during stable economic situations.

startup crisis
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We all can see a few things happening as a reaction to the global crisis, which is just around the corner. These signs aren’t good nor bad – they’re just there. So let’s quickly review them and gain a better understanding of the current situation:

  1. Governments are rolling out programs meant to help businesses stay in operation and avoid letting go of the majority of their staff.
  2. However, companies are carrying out layoffs.Salaries, especially in IT, are a MAJOR cost in any budget. Layoffs may be extremely unpopular, but they’re often required. Situations like the current crisis force managers to take a better look at the team and answer the hard question: Who is the most valuable asset? Who is indispensable?
  3. Companies are also introducing limited work-hours.They work a bit like partial layoffs – the staff is asked to work part-time (for example, three days per week). This is a good strategy to keep a larger team on board and avoid actual layoffs.
  4. Companies are cutting non-essential expenses. Naturally, it’s impossible to remove all of the expenses – but some of them can be limited. Here are a few examples:
  • Leases and loans – sometimes they can be put on hold for a few months
  • Office rent – many building owners offer preferential rates during the pandemic, so it’s always worth asking about that.

Naturally, there’s an entire range of non-essential expenses related to perks, benefits, and other things to which many employees have grown accustomed like:

  • Gym cards
  • Transportation vouchers
  • Or even expenses like hardware upgrade programs

However, some non-essentials disappeared from the budget automatically when the entire team started to work remotely. Many of the office expenses are no longer an issue.

Finally, companies are also limiting their advertising expenses or stopping them altogether. This generates big savings and often makes sense in a situation where consumers are less likely to covert.

So, these are fairly standard. But what else should be happening besides cost-cutting and entering the survival mode?

Consider this: Surviving the lockdown is only one part of the story. The other is not getting destroyed by the competition afterward.

Here’s what you can do now

Hold off on the non-critical things. But use the slowdown to get ready for the restart of the global economy. Naturally, it’s not going to switch on like that. But it will restart eventually and then start growing, just like it did after the financial crisis in 2008.

It might take months to get anywhere close to the pre-pandemic levels of business. But if you spend your time wisely right now, you’ll reap greater benefits from this.

So, here’s what you can do to get your business ready and use the slowdown wisely:

1. Rethink your marketing strategy

It needs to match the different scenarios which are going to unfold once the economy is restarted.

Maybe it’s time for a rebranding that has been on hold due to lack of time?

What else, besides your current offer, would help your customers in these trying times? Perhaps it’s time to test the grounds for a new product? Or maybe you could organize a survey to understand your customers even better?

2. Carry out an external and internal assessment

In his timely article, the startup guru Steve Blank urges CEOs to start asking some essential questions to understand their present and future situation better. It starts with general questions about what the economy will look like in the next few quarters and ends with detailed ones like the monthly cash burn during the low revenue level.

External assessment – questions to ask:

  • What is the current state of the economy?
  • What is the rate of unemployment?
  • What restrictions are in place?
  • What does your current target market look like? Are customers actively buying? Did they go out of business?
  • Are there any new opportunities or emerging markets?
  • When can your employee resume their regular work? When will customers start buying?

Internal assessment – things to check

  • Your operating numbers:
    • Liquidity and likely cash-out date under your worst-case scenario
    • Accounts receivable/accounts payable
    • Sales pipeline/forecast
    • Marketing spending
    • Payroll costs/other variable costs
  •  Sources of extra capital

3. Prepare a new operating plan (and rethink your business model!)

The crisis might be the best time to pivot. Do you see any new customers, services, or channels emerging in your niche?

This is also the best moment to take a good look at your business model. Are there any parts of your business that could serve sectors where business is running as usual or booming? Consider things like telemedicine, home delivery, and remote work.

Here’s an example: If you operated brick-and-mortar stores, can you now offer your products online and build an e-commerce service? That way, your customers could continue buying without having to ever leave the house.

Consider operational changes as well. For instance, it might make more sense to focus more effort on customer retention rather than acquisition at the moment.

And then there’s marketing. Maybe it’s time for a rebranding that has been on hold due to the lack of time?

The future is now

I believe that companies that are actively working on reshaping their business models now and getting ready for the restart will get an upper-hand in the times to come.

Join the trend, get ready, focus on the future, do the unpleasant things that you need to do now, and push with everything that will be required of your startup in 1, 3, 6, and 12 months.

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