As the coronavirus continues to disrupt the global economy and ‘business-as-usual’, it is the entrepreneurs, (tech) startups and SMEs who are most at risk of falling victim to the economic slump.
Starting a business is difficult enough, without having a situation so unprecedented that nearly the entire world has gone into lockdown.
There are of course opportunities to be had during the coronavirus crisis, perhaps especially for tech companies and some tech startups (video conferencing solutions like Zoom jump out), but the majority will be facing some extremely difficult challenges over the coming months.
To help (tech) startups and other businesses to survive the economic slump caused by the coronavirus, Information Age asked for some VC advice.
1. Cash preservation
Robin Klein, founding partner at LocalGlobe, says that “as a founder, your primary focus needs to switch from growth to cash preservation. If you really are ‘up against it’ in terms of running out of cash, it’s really important to communicate frequently with your board and shareholders.”
He continues: “Don’t hide! Do negotiate with landlords and large corporate suppliers. Defer PAYE or VAT if you can. Unfortunately, you may need to downsize in certain areas. This is hard but the ultimate preservation of your business for the benefit of all stakeholders is a priority.”
Similar to the advice received in our first Coronavirus Diary submission, where Fred Krefting, co-founder and COO of You Check, a tech startup in the live events sector, suggested the coronavirus could be used as an opportunity to really focus on the product, Klein also believes this period should be one for reflection.
He advises: “Most of all, use the time and lack of ‘ambient noise’ to really focus on your product, thinking carefully about how customer needs may change, how it can be made better. All great companies have been through similar downturns — and have emerged stronger. So as a
leader you should work hard to build an atmosphere within the company of real determination, collective fight and belief in the mission.”
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Pienaar says that “while we do not yet know the depth of the economic downturn, as a result of the impact of the Covid-19 pandemic, it will inevitably be painful and a worrying time for tech startups.”
To overcome the potential hurdles, he suggests that “[Tech] startups should keep close to and talk with their investors. Resources of investors can stretch way beyond simply funding.
“At C5 Capital our ecosystem encourages shared best practice, offers mentoring and provides access to new markets to our portfolio companies. Through collaboration and mutual support start-ups will be better equipped to weather the economic storm.”
Similar to Klein, Pienaar also advises that the “regardless of what stage the startup is at, cash conservation is key and spending should be prioritised on the critical elements of the business. Supporting and communicating transparently with employees is also vital to ensure they remain focused on and involved in the business.”
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Top 10 tips for surviving the economic slump
The coronavirus has changed how businesses operate and has brought about a new economic reality that businesses in all industries will need to adapt to.
“As we navigate the challenges caused by Covid-19, we advise startups to take a number of precautions from cutting costs as appropriate to reduce burn, to shifting your leadership mindset,” adds David Blumberg, founder and managing partner at Blumberg Capital.
“There is an opportunity for portfolio company CEOs to prove themselves as trusted leaders and come out stronger on the other side.”
Here are his top 10 tips for surviving through economic slumps, looking at how startups and businesses can work through the impacts of the coronavirus, while demonstrating to the workforce, investors and peers that you’re thinking long-term.
1. While we’ve never experienced something like this before, it is temporary and we will get through it. Repeat that to yourself and your colleagues.
2. As a leader, make sure you’re acting rationally, not emotionally during this time.
3. Data is your friend and should be your guide.
4. Review your budget and focus on cash flow with scenario planning alternatives.
5. Treat your employees and customers well — they’ll remember how you handle difficult situations.
6. If you’re in a period when you can’t sell, focus resources on development of a better, more automated, more intelligent products coming out of the crisis.
7. Communication with your investors should be a two-way street and transparency and support should flow in both directions.
8. Look for creative ways to cut costs, such as reallocating budget to priority initiatives and saving on ones that aren’t necessary in the short-term.
9. Assess your credit situation and readjust your budgets as necessary.