The COVID-19 pandemic has been brutal to startups and small businesses. How so?
Unlike big businesses, startups don’t have large cash reserves or profit margins to keep the wheels turning during unexpected slumps.
Reverse revenue churn coupled with business overheads have pushed many startups towards bankruptcy and shut down.
Image via McKinsey & Company
Startups in the seed phase (when businesses are low on liquidity since they are mostly bootstrapped or self-funded) have been most vulnerable. As their services/products were yet to generate revenue from real customers, they were forced to fold back operations before reaching maturity.
While new-born startups had it extra-tough, the “valley of death” (in startup language) has engulfed startups in all stages.
Now, as the business world unlocks from global lockdowns, startups that we’re fortunate to survive the slowdown are looking for recovery plans to get their revenue engine up and running.
In this post, I’ll explain a few smart survival strategies for startups to emerge stronger in a post- COVID-19 world.
Let’s get started.
How can startups get back on track after COVID-19
Being the worst-affected demographic, startups need risk-free survival strategies to resurrect. They might need to overhaul their business plans and long-term vision.
Whatever disaster management tactics you use, first conduct a risk assessment on them. If you miss this crucial step, you might end up investing heavily in a tactic that doesn’t give proportionate returns.
As a startup owner, here are the steps that you need to take to get your business back on its feet:
Reassess your expenses
Startups with liquidity problems need to control their expenses from mounting during this slump. You need to take a good look at your balance sheet and segregate expenses into fixed and variable categories.
Expenses that have a direct impact on revenue cannot be avoided without disturbing the income stream. On the other hand, running costs such as consumables and rentals can be minimised with smart planning.
For instance, manufacturers can automate inventory management so that they are alerted when stock prices fall. They can redesign product lines to use lower-priced items.
Travel tech startups can divert resources from hotels and entertainment (which are halted at the moment) into more profitable service areas such as facility management.
For startups in all domains, investment in digital experiences and tools can reduce travel overheads without affecting productivity. There is virtually no key operation area that can’t be facilitated through automated tools.
Yes. Monitoring your cost-revenue balance should not be a one-time activity. You need to reassess your situation every three months at least. While planning resource allocation, it’s best to create short and flexible plans as the market is very unpredictable right now.
Approach your existing investors for reinvestment
Every business needs capital to survive. Startups, in particular, rely heavily on venture capitalists (VC) or high-net-worth individuals (HNI) for funding. Since it’s uncertain when this pandemic will end, VC/HNI investors are extra-vigilant and taking their time evaluating investment opportunities.
I bet it does. But you don’t have to panic. You can approach your existing investors with reinvestment plans. Since they already have a stake in your business, there’s a good chance that they will extend the collaboration.
If you support your investment appeal with concrete business strategies and data-backed profit projections, you can make it a no-brainer for investors.
What if your investors don’t buy your story? Should you press the panic button?
If you have liquid reserves, you can tide through this period and wait till you are better placed. In the meantime, keep a close watch on your business valuation. Make a strategic call about when to approach investors for round two of funding.
I might seem too optimistic, but I’m not joking when I say that you can convert this adversity into an opportunity. Use your business acumen and adaptability to create more business opportunities for yourself and your stakeholders. That can convince your investors to increase their equity stake.
Check business model for feasibility
Your startup might be marginally lucky if you are covered under essential services defined by state governments. By tweaking your working format, your business model will be feasible during and after the pandemic.
However, if your supply chain is affected by government-imposed lockdowns, you might have to revisit business plans. You’ll have to relook your current financial position with regard to sales, bad debts, credit cycles, and collections.
Here are some ways by which you can pivot your business model to align with the “new normal” conditions:
- Renegotiate your variable expenses (equipment rentals, office leases, and salaries).
- Change your selling strategy from in-person to virtual.
- Focus on recovering bad debts.
- Cut down on travel expenses of operations teams by allowing them to work remotely.
- Scale down your marketing plans.
- Revise sales targets and product delivery timelines.
Through all this, it’s essential that you stay connected with all stakeholders, including vendors, workers, and customers. In such uncertain times, it’s easy for them to lose faith and look for other business opportunities, which can be a big setback for you.
Explore alternative business models
The pandemic has changed buyer behaviour in a big way. Consumers prefer to engage with trusted brands who can assure them real value, deliverability, and customer service.
Startups are suddenly finding themselves locked in a heated competition with established brands.
To capitalise on the situation, your startup can try an affiliate business model.
You can partner with reputable brands that sell complementary products. Though these brands are targeting the same audience as you, they are not direct competitors. They refer their customers to you in return for a commission.
In this way, you earn new leads without spending a bundle on direct marketing.
However, the affiliate model is feasible only if it’s mutually beneficial. You will need to keep a watch on performance indicators that you and your affiliates mutually decide. If you have multiple affiliates generating leads for you from multiple channels, affiliate marketing platforms can help streamline things.
You can also ask existing customers for referrals and retarget lost leads to save on customer acquisition costs.
Lastly, brands need to be empathetic in all of their communications with workers, suppliers, and customers.
Why is that important?
Once markets bounce back, people will remember and reward brands that displayed integrity and compassion when times were tough.
Also, there have been cases where brands have received negative publicity for mishandling their stakeholders. That can be disastrous for growing startups.
Startups need to be mindful of how the pandemic has changed customer expectations from brands. They need to step up their customer service game to beat the competition and retain customers.
You can crowd-source service ideas from customers by asking for their suggestions. Create feedback forms asking customers to share which services they expect from your brand. Implement the suggestions on priority. In this way, you can improve customer loyalty and also prevent your existing customers from going astray.
When it comes to workers, you need to strike a balance between their professional aspirations and your business needs. While salary cuts and lay-offs might be inevitable, it’s good to go about it in a compassionate manner. Discuss the business situation with them honestly and explain why the rollbacks are necessary.
Startups that are transparent in their communication can boost their credibility and trust quotient, which can earn them new business opportunities.
The COVID-19 pandemic has toppled the delicate ecosystem of startups. Even mature startups are finding it hard to adapt to the unprecedented challenges they are facing.
But new challenges build new capabilities. Startups need to keep up their efforts. The survival strategies in this post can help you sail through this period. Do you need more information on any of the tips I’ve mentioned? Leave your questions in the comments below.
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