Often economies emerge far more resilient after a period of recession, leading to a period of sustained growth. On a similar note, several successful startups and innovative businesses emerge from challenging times and transform into unicorns. Pinterest, DropBox, Airbnb, Uber, and Groupon were founded around the 2008 global financial crisis, and Taobao was founded in 2003 during the SARS outbreak.
Such examples of founders that found newborn opportunities in challenges reaffirm the belief that startups can stand up to the occasion, and help bridge the gap brought on by difficult economic or health conditions while responding to changing consumer behaviour.
Therefore, it is time to switch to “wartime CEO” and use the current crisis to course-correct. Here are a few ways of how early-stage startups can survive the COVID-19 crisis.
Business feasibility and back-up plan
Some of the biggest unicorns are being asked hard questions on business feasibility, massive losses, and how they will clock profits in the current financial year. Highly capitalised startups will find it hard to survive through 2020 since they have been used to large outlays for customer acquisition, and haven’t thought through unit economics.
It would serve well for startups to prepare a feasibility plan, taking into account all possible eventualities for the short-term to long-term.
Remaining agile is important in the midst of leading small business, and therefore, list out all the potential threats that could affect your business operations, and quickly come up with back-up plans for each threat.
Pivot the business model; maximise revenues through innovation
Bootstrapping and being self-sustainable was always applicable to start in the pre-COVID-19 era, but it is even more relevant today. To survive this crisis, startups will need to pivot their business model, innovate on revenue streams, and transform the organisation.
Getting the revenue rolling at times of crisis will require a Herculean effort, and founders should go all out to ensure that the revenue engines are revved up.
Founders should seek innovative ways to close customers/sales, aim for advances from customers, start consulting in their area of expertise for an alternative revenue stream, and if possible, sell company assets to extend the runway.
In the pre-COVID-19 world, founders only cared about growth, largely by investors. The quality of growth was often overlooked while chasing a higher valuation in the next round of investment. The crisis has ensured that revenues and growth are looked upon differently.
Reduce cash burn
Create a monthly cash flow that tracks your expenses against revenues. Divide cost items into a ‘need to have’ and ‘nice to have’ costs, such that you have enough cash for one year till the market dynamics start looking up. Carefully revisit all areas of operations and decide which ones are key for operations.
Reduce employee hours per week temporarily or reduce salaries or reduce the headcount. Reducing the headcount will automatically extend the runway for a startup at a time when visibility on fundraising is low.
While the layoffs could easily be attributed to the pandemic, the reality is that several startups needed to have a deeper look at and rethink their business models even before the pandemic, while making deep cuts in their outflows.
If possible, as a founder or co-founder, get a part-time job so that your early-stage startup does not have to bear your salary/expenses.
Investors like to see founders that display agility, leadership in change management, and the grit to survive. Therefore, it would be prudent to try approaching existing investors with a new business model and feasibility plan, thereby getting them to commit to a bridge round.
Continuing to look out for potential funding from new investors is also vital. Many VC/PE firms have announced funds dedicated to startups that are innovating for the COVID-19 crisis.
Investors continue to look for potential opportunities and would like to deploy funds if they see value in a business opportunity. Startups could also participate in startup competitions, apply for foundation grants, or try for a small round from family and friends.
However, founders should take a strategic call on funding rounds. Startups that can survive a 12-18 month runway should wait it out to enable better valuations for their business when things are looking up after a year.
The COVID-19 pandemic and the nationwide lockdown has forced several changes in the society and brought down consumerism to the essentials. However, this has also created exciting business opportunities for young entrepreneurs and startups that have been able to look beyond the present.
Innovative founders have quickly pivoted to convert the challenges brought on by the pandemic into opportunities. Sectors like healthcare, edtech, additive manufacturing, teleworking, contact tracing, and ecommerce have seen a dramatic boost.
In this new world order, cities and global value chains might get transformed. Early-stage startups can either lead that transformation through resilience and innovation or wait until the crisis comes for them.