By Dr Apoorv Ranjan Sharma
By most accounts, the current situation could translate into a long recession. With consistent downward slope on every parameter – sales growth or profit, no one can predict when the businesses will hit bottom. Entrepreneurs, either well-funded or looking for capital, will be forced to make drastic moves as they enter the survival mode. Historically, both large and small businesses have felt the sting of downturn, but smaller startups experienced disproportionate declines hurt by a tightened credit supply.
Firstly, take stock of your current gross burn rate and actual revenue each month. Since it is not a normal situation, assumptions or forecasting about customers, sales cycle and burn rate will no longer hold true. Also, the actual number will likely will be worse a month from now.
While one may hope for an overnight recovery, don’t count on it. And when you assume it is going to get worse, expenses will be strictly monitored. Remember, like you, your customers and clients are also cutting their expenses. The first step is to cut or reduce your monthly cash outflows. This includes negotiating with landlords to cut rent or even switching vendors if they can give you a big discount. However, small morale boosting expenses where the benefits in employee productivity far outweigh the costs and should not be curtailed.
Don’t cut so much of your business expenses that you can no longer service your customers. Remind your customers why they chose you – highlighting that you are most cost-effective. Your low prices are even more important during the recession. In addition, your client would spend differently now in an effort to get more value out of their purchases. Position yourself as a great value, and you outlive the pandemic.
Rivals will be in the same boat as you. Some will also have more capital and marketing clout. Startups should use innovative marketing strategy that in some way mimic how it started – with frugal operations hoping that creativity will be an equaliser.
A jittery team is not an effective team and everybody realises that employees are essential to a company’s survival but so are layoffs. Make sure you cut deep enough so you don’t have to do it again in short term. It will be painful, but getting it over with soon will ensure remaining employees can stop worrying and get back to working on turning the company around. Set an example by cutting or even eliminating your own salary before you cut your employees’ salaries.
After slicing your expenses and cash outflows, the next step is to increase and speed up the inflow of cash. Get cash in hand by offering even if it means offering customers a discount for paying sooner. The situation is also likely to serve as a catalyst for trends that had already been beforehand – more working from home and more online shopping. Enterprise software startups can switch their marketing and sales focus to a more consumer-like strategy, more so after their ability to travel to reach business customers will now be constrained.
Tech startups are particularly vulnerable to productivity lost to coronavirus workplace disruptions — given their constant need to upgrade digital offerings — and many will require cash to endure trying months ahead. On a positive note, there is still industrywide cash reserves held by venture capital firms that need to be put to work. But if past cycles are any guide, we can expect a sharp startup funding slowdown in coming months.
Simply put, companies that have enough cash to cope with the crisis will clear away a lot of competitors and that will continue to remain the ugly truth universally.
(The author is the Co-Founder and Managing Director of 9Unicorn)
great post