It’s an uneasy time for entrepreneurs. There are many things in today’s entwined recession and pandemic that are not within your control. When I ran my own startup, I heeded the advice of my former employer, the CEO of Cisco. If your business is on a decline, determine if it’s due to the market environment or to your own decisions. Focus on moving as fast as possible on the things that are within your control.
Here are five things about your business that you can change right now.
1. Focus On What’s Next
Challenge yourself daily, “What can I do to prepare for the post-recession world?” Consult with your advisors and most trusted employees to build a sound plan to get through the recession with the core of your company intact.
Attractive opportunities may pop up that seem inexpensive in the current situation, but don’t stretch too far. Avoid spending outside of your core areas of strength and concentrate on the markets where you have the most demand. Do you have adequate cash reserves in case there’s a hiccup? Unless the opportunity leaves you in a reasonable cash position and it’s a quick return on investment, press the pause button.
2. Know When To Tilt
Entrepreneurs hold a particular vision for their companies. But don’t be so fixated on that dream that you overlook opportunities the recession will drive. I’m not suggesting a complete pivot — that would contradict my point about focus. Instead, keep your antennae out to tilt in a certain direction. After all, YouTube thought it would be a dating site and Nokia started out by selling rubber boots.
The COVID-19 pandemic has accelerated the adoption of technology for delivery, e-commerce, streaming, telehealth, and virtual learning. There’s a big opportunity for companies that can help their customers do business digitally or virtually.
Technology pundit Om Malik noted that economic downturns, especially in technology, have a silver lining in terms of fostering innovation. “Smart entrepreneurs look at a crisis — be it a virus or a recession or an act of terrorism — seeking what was revealed, what was missing, and what will persist in the future.”
Just witness the household names that got their start during economic hard times. The famous HP garage door lifted during the Great Depression. Microsoft was born during the 1970s. Mailchimp started during the dot-com slump of 2001. The recent Great Recession saw the creation of Airbnb, Square, Uber and Venmo.
3. Slow The Burn
In a recession, conserve cash reserves by reducing any expenses you can. Stay atop collection of receivables and review your payment schedules to see where they can be adjusted.
Some cost savings come with the new territory. COVID-19 has suddenly stopped most travel expenses and cut out tradeshows. There are also creative cash-boosting measures; at our startup we did a deal with an OEM vendor to pay licenses up front to get us through a bad spell.
If you have a line of credit, draw it down, as borrowing is inexpensive now. But if you’re an innovation-led startup, you may not have the cash flow to pay it back quickly. I recommend having 18 months of cash available to cover unforeseen events. Seek investment if you spend down to that number. If you don’t have that cushion, you’ll feel desperate and won’t have negotiating power in your next funding round — and the more money you take, the higher percentage of your company you’re giving away.
4. Consider The Human Factor
This is the time to coddle your customers and show them empathy. Listening, helping, and understanding the challenges they face and how you can help may preserve the relationship if they’re also having difficulties.
You also don’t want to throw over suppliers and distributors in long-term relationships as a knee-jerk cost-cutting measure. Review contracts, yes, but don’t lose the time you invested in them.
Companies often look first to employees as a way to reduce expenses. But if you have a highly talented team that you worked hard to build, find a way to keep as many of them as possible — even if it means working shorter hours, four-day weeks, or reducing salaries temporarily. And if you must cut salaries, lead from the front and start with your own. Base decisions on performance instead of hierarchy or longevity. Protect the high-achieving people who can help manage this recession and ensure the company emerges stronger from it. As a startup, you also have your own cash-free currency — company equity. So, if you have to cut salaries, consider offering stock so that everyone benefits from the upside when you come out the other side.
5. Communicate With Transparency And Authenticity
It’s critical to communicate regularly, clearly and confidently with key audiences. Be honest with investors and employees about the state of the business. Communicate confidence to your customers. You want people to stay on board as you navigate challenges, but they need to feel secure about where they stand. What kills confidence is lack of communication.
Companies are usually pressured to cut “soft” expenses such as marketing during a downturn, but it’s a time to shine against competitors. Startups need a steady outbound feed of good news, which can be done inexpensively through social media and company blogs. But change your message so it’s in tune with the times — for example, how the company is helping customers deal with the pandemic and the recession. Don’t go silent. If you’re not visible, people may think you’re not viable – and then you’ll be hard pressed to attract new investors, partners, suitors, or customers.
Light On The Horizon
If you move quickly, keep focused on the future, conserve cash, remain open to smart opportunities, and communicate clearly with key audiences, your startup will be well positioned not just to weather the current storm but come out stronger on the other side.