Startups, by nature, already face a certain degree of chaos and uncertainty. The COVID-19 virus has caused governments to take drastic lockdown measures, turning the economic world on its head.
So, with this colossal event before us, what measures can startups take to ride out the pandemic and survive?
If you’re a startup, the current crisis doesn’t necessarily mean you’ll be closing your doors. There are actually some silver linings in this ominous cloud.
To startups in the entertainment, news, healthtech, biotech or fintech niches, this is your time and you should be able to ride the wave and see some growth. For other sectors, hold on tight, it may be a bumpy ride.
Here are some tips and ideas on how your startup can survive the coronavirus.
Crunch your numbers
First things first. All accounting that you do periodically needs to be done now. It’s important to establish your current burn rate and runway.
How much are you spending each month? Establish figures for your monthly fixed (office rental) and variable (consultants, salaries, commissions, business travel, etc.) expenses. That will give you your burn rate. Now calculate your monthly revenue. Subtract your monthly burn rate from your monthly revenue. Place these numbers against your startups current bank account balance.
Now, calculate how long you’re able to keep your company running at the current burn rate. And then start figuring out where you can trim costs, how much you can afford to trim and still stay in business and how much time that might buy you.
Scale back your expectations
Most startups have high ambitions to become a big company and build their company culture around thinking big and aiming high. Unless you’re in one of the golden niches that will flourish in this situation, it’s time to scale back your expectations drastically.
There’s a fine line between doom and gloom and practical caution. Your communication with your team should be one of hope and determination, but with a clear message that for the present moment, the main goal is to be able to survive rather than scaling up.
Accept that you may need to economize
Depending on where your startup is located, you may receive government assistance in the form of tax deferments and social payments . If your government doesn’t offer these boons, you may be facing some aggressive reduction in spending and overhead. One of the biggest risks you will be facing is resources drying up.
Though nobody likes doing it, reducing marketing budgets and salaries can help save the company in the long-term. While it’s difficult to predict the long-term effects on the economy, projections for economic revival are set optimistically at 12 months out, so be prepared to go lean over the next year.
Go remote (as if there were a choice)
Some startups already operate remotely, so they’ll be ahead of the curve on this one. If yours doesn’t, you’ll need to make the adjustment to moving all your work online. To some degree or another, many businesses already use virtual networks to do things like:
- Have conference calls with non-local clients, board members or employees
- Do outreach to potential clients or investors via email or messaging apps
- Organize and track project workflows through collaborative platforms
Besides saving your company as everyone is forced to stay home, there are actually a lot of benefits to remote work: remote companies have much less overhead than those with physical headquarters, remote employees are actually more productive, the ability to track and coordinate all your workflows through apps and collaboration platforms can help cut down on human error and communication problems. You may even find that some of these new measures are beneficial to adapt once you’re able to meet face to face again.
Andre Francois, CEO of the Swedish startup that’s focused on employee wellbeing commented, “Our startup Happy at Work is seeing that bigger clients seem more interested now when they are working remote! We can offer clients a smart digital solution to maintain wellbeing during this difficult situation”.
Adapt to the new market, if possible
As the world moves indoors, certain products are no longer marketable. A recent Forbes article revealed how several perfume and alcohol companies such as LVMH (producer of Guerlain, Givenchy and Christian Dior perfumes), Absolut Vodka in Sweden and several American distilleries have switched to producing hand sanitizer. GM is considering using its manufacturing facilities to produce ventilators and respirators.
Many services have moved online: psychologists are treating patients online; classes of all kinds are being taught online; news correspondents are reporting from home. If you can make this move too, do it.
Catering to the homebound is a big market right now. Anything that has to do with making people’s lives easier while they’re stuck inside will be appreciated. From how to entertain your children during a month-Iong lockdown to creative recipes to well-being tips, if your product can be adapted to the current market needs, make that switch as soon as possible.
Look to the future
While many look forward to getting back to “business as usual” the effects of such as widescale global crisis will make that virtually impossible. There are some trends that were already building before the pandemic hit that will accelerate their adoption in the near future.
The green movement will likely see a great upswing during and after the pandemic as greater consciousness about the global impact of our current economic model seeps into the public consciousness.
And, as the public gets more used to experiencing goods and services from their home, there will likely be a much greater focus on online optimized products and services.
The health sector can expect extended growth- not just directly related to the pandemic- but as the public reshuffles their perspective on health and longevity.
Luxury sectors may be sluggish to regrow while businesses that cater to issues of public safety may see growth.
And any startup in the travel sector, one that has been hit hardest, can set the stage for a massive uptick in business after the coronavirus pandemic wanes, so be prepared for a comeback.
These are very uncertain economic times and startups need to proceed with caution and creativity to adapt to the new reality. Understanding your current financial reality, accepting that you will have to scale back, moving your team online, adapting your service or product to the new market and preparing yourself for future trends will help salvage your startup in these difficult economic times.
On an optimistic note, take heart: Dan Rosen of Seattle’s Alliance of Angels has said that great startups are often created during market downturns.
25th March 2020