An economy with startups blooming all across is the most fundamental and feasible marker of a healthy and thriving business ecosystem. From establishing a strong base for innovations to driving equality in economic structure, a well-working startup ecosystem ensures it all!
If it was not for Covid-19 and the Russian invasion of Ukraine affecting the oil prices all across, the past decade has been nothing short of a dream for the startup ecosystem.
Any recession sure puts a halt to this innovation hub, but those who plan, prioritize and trim well still sail through it. But are we telling it is going to be easy? Nope. Now is the time you fight for your business – also the reason you began with it!
Over the journey of a startup, sometimes a startup owner tends to lose track of the product/service it began for and with. The recessionary times become critical in this situation, for it provides little scope to a startup to make mistakes and rectify them. One wrong step, and you can be out of the ecosystem forever.
However, if you have a strong product or service, the times only test you to make you stronger. It also builds the character of a startup owner and strengthens the journey in the future.
As a startup accelerator and investor base, KiwiTech assumes the duty of safeguarding and advising both parties – the owner and the investor for the best in these tough times. This blog will take care of that and prepare you for the what ifs as well.
There’s only one way you predict the future, by tracking and analyzing past events. The past two events of the economic downturn in the internet age have market few important markers, which are:
Like anything else, it is always going to be difficult to start something new on rainy days. The past two economic downturns have it; seed and angel investments are never that great.
Typically, it is not the angel investor’s risk-taking capability that discourages them to invest. It’s about the number of investments that they are willing to risk with the newer ones
So there is no denying that it will be HARD for the ones starting it out now or are in the Series A stage of investment. Unfortunately, most of these startups do not have the resources to buy them some time, which is the need of the hour.
Speaking of time, growth-stage startups or startups already in the Series B or C stage, things appear to be much better comparatively. Although the clock is ticking for them as well, but they at least have the foundation set
There’s another way to determine and analyze you condition in this startup, by checking which group do you fall into
When a company’s expenses remain constant, revenue growth remains stagnant. It is a situation that Paul Graham terms as “Default-dead” startups. For them, time is limited to come to their feet.
But if a company is default-alive, it suggests that it can drive its cash inflows by itself, making it self-sustainable. It is the ideal position; any startup should aim to be in these tough times.
Irrespective of the group or stage of your startup, there are some fundamentals you need to consider before planning for this recession.
It is funny how business fundamentals never leave you but only guard you in tough times. There is no way you can wing your startup than keeping the cash flow going, and what is better than being a self-provider of it.
Planning is the key; the cash reserve is your savior for the tough times. As experts remark, startups need to have enough cash reserves to suffice for at least 6-12 months.
In case you are yet to seek funding for your startup from anyone, the time has come now. Concentrate all your energies on seeking that funding you are looking for. If there is anything that can make you stay afloat, it is this.
VC Funds tend to deplete, which is bad news for the entire ecosystem. But there is more and more need to look for newer alternatives to fund the startup. Equity Crowdfunding Campaigns are the favorites of startup owners in these tough times.
Even in the 2010-11 recession, the crowdfunding market grew 54%, grossing more than 830 million dollars among 1.2 million crowdfunding campaigns.
Platforms like the Lending Club and Prosper democratized the lending and investment process, allowing almost anyone to put their dollars towards new ventures and growing businesses.
Before going in for the hard calls of layoffs, make sure you cut down all the unnecessary nonhuman expenses like, coffees and galas of the company. As much as it adds to your company’s culture, nothing matters if the company is not making profits to sustain.
Trust me when I say this: no company, no startup enjoys doing this, if it was not for the company’s bigger picture. It is generally the last resort of any founder, for downsizing is what sensationalizes the whole paradigm of the recession, not realizing the need of the hour.
Many startups waste a lot of time just thinking about the change, while in this case, the fortune will favor the early mover. There can be chances of a mistake, but not changing can only worsen the situation.
If today you need to lay off 10 members from your company, if you do not take this decision fast, it will not be a matter of months that you’d be forced to lay off 100 of them.
Ultimately, everything comes down to the rule of Jungle, Survival of the Fittest.
As much as we crib about the market being down, it is also an opportunity for the investors waiting to buy in during a dip; there are similar opportunities within the startup world.
If the foundations have been cemented well and you have the cash required, this is the time to acquire some market dominance by buying-out competition.
However, unless you do not accelerate the revenue streams and take on a more aggressive mode, it leaves you no different than the early-stage startups, so take this decision wisely.
Other things also become cheaper such as office space (especially during this coronavirus period) and travel expenses.
Businesses within specific spaces, such as collaboration, also have opportunities to expand within the current market.
However, the most redeeming note is that there were still many startups that became huge unicorns from the last recession in 2008, like Airbnb, Pinterest etc.
At KiwiTech, we enjoy over two decades of service in the startup ecosystem. We have witnessed and helped startups strive the way in the past economic downturns. If you are someone concerned regarding the market volatility and risk for your startup, with our experience and knowledge by our side, we can assist you in planning better.