The COVID-19 pandemic has created an unpredictable business environment where even the most established companies are shifting their focus from growth to survival. For start-ups, the challenges are even more significant.
Thousands of start-ups enter the corporate race every year. However, only a little over half actually survive to their fourth year, and the startup failure rate at four years is approximately 44 percent. These are daunting numbers even in a normal economy.
Now consider an economic downturn. Investments dry up as venture capitalists become risk-averse and seek more reliable investments. Most start-ups work with slim cash margins so a slow sales cycle can create a major cash flow crisis. Also, start-ups thrive in an environment of close in-person collaboration. However, in these times of social distancing, that’s not an option.
Navigating an economic downturn is a daunting task for organizations in the early stages of development. However, it can also be taken up as an opportunity to innovate and implement new ideas that will help organizations come out stronger in the long run.
Here are five strategies that can help start-ups weather this economic downturn.
1. Cut costs
Start-ups track expenses carefully in a regular economy but during a downturn, it is important to actively cut costs. Eliminate low performing projects, trim employee perks, and carefully consider whether you need a brick-and-mortar location. Enable effective remote work conditions for your team or consider getting a coworking space to save on rent and utilities.
Even small budget cuts make a difference so eliminate overheads such as underutilized software licenses, free office lunches, and take careful stock of your inventory. If it’s not completely essential to the business, delay or don’t buy. Conversely, negotiate with suppliers on better deals and prices for essentials items.
2. Go digital
Optimize operations by going digital wherever possible. As an example, you can improve employee productivity and cut costs by automating the management of your software and hardware assets via a cloud-based IT asset management software. Get real-time information on the location of your IT assets, and ensure that the equipment is in top-shape with automated servicing and maintenance alerts.
Automating this function also enables employees to easily collaborate both on-premise or remotely while you receive real-time updates.
3. Hire freelancers
Start-ups thrive on highly motivated teams and downturn or not, you should not skimp on quality talent. If you cannot afford to hire full-time employees, consider freelancers, contractors, or part-time workers.
As the economy slows down, there is typically a large pool of talent to choose from due to lay-offs and cut-backs on hiring. You save money by paying them a fixed price or an hourly rate without the added cost of benefits such as healthcare, sick leaves, holidays, and other perks.
4. Don’t be afraid to pivot
An agile company is not afraid to pivot with a changing market. Consider multiple businesses that changed course from what they originally planned to do and found success with a different plan. For example, YouTube was originally a sort of video-based dating service, and Yelp was not always the go-to source for reviews — it started as an automated system to ask friends for direct recommendations.
An economic downturn changes consumer budgets and priorities which is why it is important to consider the new market reality and pivot your business accordingly. This could mean adding more products to your portfolio, changing your product, offering a discount on pricing, or targeting a whole new demographic. A downturn may require an overhaul of your plan but it could be the path to long-term survival and success.
5. Use government stimulus offers
Finally, it is important to avail financial assistance offered via government loans or stimulus packages. For example, the US Small Business Administration (SBA) offers a Paycheck Protection Program to eligible businesses. This loan is designed to provide a direct incentive for businesses to keep their employees on the payroll.
Likewise, the SBA’s Economic Injury Disaster Loan (EIDL) is designed to provide economic relief to businesses that are currently experiencing a temporary loss of revenue. EIDL proceeds can be used to cover a wide array of working capital and normal operating expenses, such as continuation to health care benefits, rent, utilities, and fixed debt payments. If you’re not familiar with this, there is an EIDL guide on the Zenefits website that can clear some doubts and answer your questions.
About the author
Rabia Mughal works as a Communications Manager at AssetSonar, a leading cloud based IT asset management solution. An experienced marketing communications professional, she is interested in the impact of digital transformation on modern business operations.