The covid-19 downturn could not come at a worse time for established businesses, let alone startups who are just getting off the ground. Investors, clients, prospects, proof of concepts, collaboration networks and business momentum vanished overnight for many startups. Without the capital behind you or pipeline ahead, you might think the startup runway looks grim.
We don’t know the severity or strength of the storm bearing down on us, but we know one thing: the storm will pass. When it does, some startups will boom and others will bust.
I’m not talking about spurious snake oil startups whose fates were sealed well before WFH and Social Distancing became part of our daily lexicon. If you need a good laugh check out these 10 weirdest tech startup ideas.
I’m talking about those extraordinary early-stage businesses who are helping transform Industry 4.0 with their technological innovations in cybersecurity, fintech, health tech, cleantech, agritech. These businesses are reshaping the world — reimagining relationships, disrupting traditional services and digitally transforming industries and are the very businesses we cannot afford to lose.
During this covid-19 crisis and downturn, the main objective for all startups is simple — extend your startup runway.
10 Practical Tips to Extend your Startup Runway
For many Startup Founders, this may be your first economic downturn. Here are 10 practical tips on how to extend your startup runway:
- Resist the temptation to promise ‘no job losses’ — it may return to haunt you if you have to make staff cuts and future promises may seem hollow.
- Delay or defer bonus/performance payments or converting some of these payments into stock. Your sales team may be your lifeline in this environment, so keep them motivated.
- As a Startup Founder, don’t draw a salary — if you can afford it, this has a hugely positive impact on staff morale and is a great sign of leadership.
- Count your cash and model scenarios on both the revenue and expense lines. Make some assumptions about the impact of client delays with existing contracts and your pipeline. Model the point where you will run out of cash in each scenario and what levers you can pull to reduce your burn rate. It seems obvious but you’d be surprised how many startups are only modelling either costs or expenses.
- Take a hard look at every expense and ask ‘do I need it?’ Measure the immediate impact of cutting the expense. Some expenses will come down naturally as a feature of the current environment (ie travel) but you may need to make some small investments to ensure people can work remotely.
- Negotiate upfront payments with clients. You will be surprised how many banks and government agencies are willing to pay in advance to lock in prices or use budget within a cycle.
- Communicate with your customers — remind them that you value their business and ask what you can do to help in this challenging time. They will remember this gesture.
- Now is a great time to lose problem clients — this cohort will always be seeking better terms, delaying payments and bringing down staff morale.
- Task someone with customer research —give them responsibility for understanding what your product or service means to your customer at this time. Does your platform have additional functionality that enables customers to do more business or do business differently? This might result in a fantastic client testimonial, a proof of concept or a sale.
- Make hard decisions early.
As we all scramble for a way forward, it is worth remembering that two of the biggest startups came out of the 2008 downturn — Uber and AirBnB.