The last couple of months are nothing less than the worst nightmare for startups. They are just in the beginning phase and the COVID-19 pandemic seems to have rattled all industries to the core. With no end in sight, things look very gloomy, to say the least. For the past couple of years, money was available for startups in abundance, but in today’s economic situation, it will start drying up really fast. No one knows the ultimate impact on economies, but suffice it to say, there is another global economic recession upon us. However, this doesn’t mean that startups should give up completely.
It is possible that the crisis can actually work in your favor by pushing you in the right direction. After all, there were a number of companies that managed to pull through the economic downturn in 2001 and then 2008. In fact, some of these companies were stronger than ever and your startup can do the same. The key point to remember is that those that show good leadership by acting quickly and responsibly can survive. Hoping the outbreak will go away on its own is not a strategy. So, what can you do? The following tips can be helpful in this regard:
Hope is Not a Survival Strategy
Your investors and co-founders need to come together for creating a plan to navigate the market in this crisis. It is time to accept that things will get worse for now before they can start getting better. Therefore, you need to come up with a plan that can help you survive the next one and a half years without any new funding. This strategy will involve making some tough decisions. All co-founders, investors, and employees need to be on the same page and know the measures that will be taken in the next couple of weeks or months.
Show Strong Leadership
With so much uncertainty, everyone is obviously going to look at the founders and they need to show strong leadership at this time. It is time to show strength and be a calm leader rather than panicking as it will only add to the stress and worries.
Understand Your Exposure
The first thing you need to do is identify all vulnerable areas of your startup and figure out how you can mitigate them early on. Firstly, you should ensure that all your finances are properly reconciled and in order. You should also have some strategies in place for boosting your profitability or diversifying your revenue. Come up with a good financial model and run a few possible financial scenarios like planning for what to do if your revenue falls to 50% or 75% or how to manage a reducing number of customers. This will give you an idea of what steps to take should you face any such situation. It can go a long way in controlling the damage.
Be Responsible for Your Employees
Managing employees and ensuring their safety is the job of the manager or leader. This means that even if it is difficult, you should try to follow government regulations. Secondly, you should try reassuring your employees as much as possible and make them comfortable. It is a good idea to choose another leader in case you or someone else gets infected and needs to be quarantined.
Communicate with the Investors and the Board
When there is uncertainty, it is a wise move to be transparent and to be upfront with your investors and your board. Even if you don’t need them for making decisions, it is best not to do so and involve them during the decision making process. If you do reach out to them for helping the company, you should ensure that it is communicated in a nice way and with all the proper facts. You shouldn’t cause them to panic unnecessarily.
Ask for Advice
This is the time when the people behind startups should get in touch with their mentors to ask them for advice. During any crisis, people need to work together and learn from each other as much as possible. You should talk to your mentor and even consult your peers. This will help you in validating any business decisions you make.
Try to Save Cash
Most startups die out not because they don’t have a good idea or plan, but because they run out of cash. Therefore, maintaining cash reserves is a priority for every startup and it becomes even more vital during a time of economic crisis. When there is an extended downturn, raising capital is not recommended because this can reduce future financing. The best way to do so is to increase cash flow and reduce your spending. You can try and generate cash and should cut back spending as much as possible. This can be handy in exploring several scenarios.
Careful decisions have to be made at this point. Instead of firing some people, it is better to reduce everyone’s salaries a little bit. Every decision has its pros and cons, but reducing salaries will be a better option. If you do have to let go, do it in one go so others are not constantly worried about losing their jobs.
Follow Your Long-Term Plan
This is not the time to lose sight of your long-term plans. Don’t let external forces change your goals or the path you were taking to get there. Since conditions are deteriorating, it can be tough to stick to the plan, but staying focused on your path can also help you in taking short-term decisions. It will also help you in planning for the recovery period.
Manage Working Remotely
Staying in touch with your employees is essential if you want to keep their morale up. Have regular meetings and be open and upfront about the decisions being made, regardless of the size of your startup.
This is the time for startups to be realistic and optimistic simultaneously in order to survive the pandemic.
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