Bracing For a Recession: 4 Strategies for Startups to Get Ahead
If you’re a founder launching a startup, then you’re no stranger to this startling fact: over 90% of new businesses fail, and a potential recession only increases that probability. Startups are particularly vulnerable due to their limited resources, and with less time on the market, clients might not have a strong loyalty to the company yet. They can expect to experience decreases in sales and profits, as well as potential layoffs that hamper new business, not to mention issues with credit access, collections that slow to a snail’s pace, and bankruptcies among clients.
With that, founders must take the proper steps to get ahead and brace for the impact of a potential economic downturn. By taking proactive measures, startups increase their chances of survival and ability to navigate difficult economic conditions.
Try applying these four strategies to head off painful decreases in business operations and revenue:
Invest In Upskilling To Build An Effective Team
It’s no secret that the key to a successful company, at any stage, lies in its employees; investing in people — in building a competent and nimble team — is always step one.
Go beyond thinking of your team as experts and think of them as your superhero squad: Each team member needs the skills and tools to face any challenge that comes their way.
Investing in employee development is a crucial step in keeping up with emerging tech trends. This will build resilience and equip teams with the skills and knowledge needed to overcome challenges and adapt to rocky market conditions.
You can’t, after all, fully leverage the latest technology unless you have teams that know how to make the most of it. A highly skilled team that’s deeply familiar with what’s possible increases your company’s value right out of the gate, but perhaps just as important during an economic downturn, a strong team will also prove more adaptable and solutions-oriented in times of crisis, fostering long-term stability.
Business leaders who successfully navigate choppy economic waters have a “let’s try a different approach” mentality that infuses the ranks of their companies, from the C-suite on down.
So, how can you turn this mentality into actionable results for your employees?
You can support them in strengthening their technical skills through workshops, senior-level hosted seminars, thoughtful discussion, and ensuring all certifications are up to date to take advantage of tech that will ultimately benefit current and future clients. Strategic conversations can bring engineers and industry professionals of all levels together to discuss trending topics from Kubernetes, the trajectory of AI, blockchain applications, and beyond. We can encourage and support startup clients in facilitating similar initiatives, which boosts camaraderie in tandem with growing skillsets for the health of their companies.
Not only will upskilling your team benefit your startup in the short term but when the economy recovers, having a highly skilled team can solidify your startup’s position for future growth and expansion. This is also because investing in employee development gives your startup a competitive edge. Broader skill sets will better equip employees to take on new responsibilities and contribute more to the overall health of the company’s new needs.
Ultimately, teams will need the right tools to seize emerging opportunities and outperform competitors.
Adapt To Improve Operational Efficiency
Adaptation often starts with candor and out-of-the-box thinking. Being honest about which emerging tech areas your startup supports can help you identify where you should concentrate your focus. Pinpoint your core competencies and streamline business operations to deliver the best value to clients in those areas. How can you expand within this area to offer more specialized services or products?
Startups can take advantage of filling the gaps that legacy competitors create when scaling back operations, by adapting their core offerings to address new needs. Throughout past recessions, we’ve seen clients shift their offerings to focus on the amplification of their main capabilities, and ultimately gained a tighter grip on the market and strengthened their long-term stability. By honing in on the core products and services your startup does best, you can optimize efficiency, reduce costs, and enhance competitor advantage.
You can also improve your startup’s efficiency and reach by leveraging digital and automation tools to streamline processes, enhance customer experiences, and reduce costs. It’s key to check out online sales channels, digital marketing, and remote collaboration tools to adapt to the changing market dynamics and identify what works best for your team and client roster. With the recent emerging tech boom, we’ve been noticing an increase in startup clients integrating AI/ML capabilities to maximize the use of their limited resources. I recommend this method specifically because AI/ML can enable startups to deliver personalized and tailored experiences to customers which can result in increased engagement, business, and beyond.
AI/ML technologies can also automate various processes, reducing time and money spent on tedious tasks.
Stay Attractive To Investors By Adjusting Cash Flow Management
Don’t forget the investment piece: if your company is in a high-risk sector, you can make your company more attractive to investors by being more realistic about financial planning, and the solutions you’re offering on the market. Keep in mind that during a downturn, investors themselves are going to be particularly averse to risk — they’ll be more inclined to pass on business models and technologies that have not yet proven to be sustainable or revenue-driving on the market.
Our VC partners are paying close attention to financial stability, adaptability, and risk mitigation. Cash flow continues to be a critical factor in their decision-making when valuing a startup, and proving a positive cash flow or a well-defined cash flow projection can enhance your startup’s valuation to ultimately become more attractive.
So, How Can You Prove This?
Analyze your cash flow patterns and develop a forecast that projects your anticipated inflows and outflows during a recession. Once you gain visibility into potential cash flow gaps, you can begin developing a plan accordingly. Our VC partners, for example, want to see proactive efforts to stay on top of forecasted challenges. In the grand scheme, cash flow aids investors in assessing the financial risk associated with an investment. Understand that revenue is important, but maintaining a healthy cash flow is crucial to covering operating expenses and financial obligations.
Steady cash flow is a key indicator of a company’s ability to generate returns and repay investors, making it a fundamental consideration for investment decision-making.
You may need to make short-term sacrifices so ensure you are in control of expenses and prioritize client retention for steady streams of cash flow.
Focus On Client Retention And Satisfaction
It’s always more expensive to acquire a new customer than it is to retain one — the rule of thumb tends to be that it’s five times more expensive to acquire than retain, but sometimes it can be as much as 25 times more expensive.
That means that when you’re in the midst of a downturn and possibly facing a recession, it’s even more critical to turn up the heat when it comes to your client relationship skills. Prioritizing customer retention and satisfaction can be a life raft for companies. I’ve seen first-hand the benefits of upholding strong relationships with clients, which is exactly why it continues to be a primary focus for us at Vention. It can help maintain revenue stability and build a trusting client base. We’ve had some of our clients since our company’s inception because we act as their partners, working alongside them to bring their blue-sky ideas to life. Empathy, proactivity, and transparency are key to forming a strong client relationship.
You can focus on customer retention and satisfaction by:
- Enhancing communication: It’s important to realize clients will also take a hit during recessions. Maintain constant and transparent communication with clients to keep them informed about any changes in your business operations, product offerings, or pricing. Overcommunicating in times of crisis is critical. Proactively address any concerns or issues they may have and personalize your communication to make each client feel valued.
- Being your client’s partner: Understand that clients may need to be more cautious with their spending and train your team to offer exceptional support that may set your startup apart from the competition. Client-facing positions should be empathetic, responsive, and prepared to work alongside clients to work through solutions. Resolve customer inquiries or digital complaints promptly and when possible, always shoot to exceed expectations.
- Implementing customer feedback initiatives: By actively seeking feedback from clients, you can garner a greater understanding of their evolving needs and expectations during a downturn. Conduct surveys, interviews, or feedback forms with clients interested in participating, and use this information to identify areas for improvement and tailor your offerings to better serve their requirements.
Positive client relationships will be particularly valuable, keeping startups (and, any company) in a more stable position throughout all stages of a recession, and can also lead to increased business due to organic reviews through word-of-mouth referrals. By focusing on fostering client retention, startups can uphold client loyalty, increase client lifetime value, and position themselves for long-term success.
In the end, it all boils down to being proactive: Startups can’t afford to just sit back and assume things will get better.
If you always hire people who think several steps ahead, you’re going to be in a good place in terms of agility. Same thing with the imaginative, innovative spirit required to adapt in challenging circumstances: Always keep an eye out for people whose commitment to innovation infuses their thinking, on every level, and make that commitment to innovation core to your company’s culture. Then ramp up your investment in client retention — that’s always good business, but it’s even better business when you’re facing a tough economy.
Remember, the actions you take during a recession can have lasting effects on your startup’s business trajectory.
By making the right decisions, startups can set themselves up for long-term business sustainability, and funding opportunities. The ability to adapt, innovate, and respond to challenges effectively during tough times will ultimately strengthen a startup’s foundation and create a competitive advantage when the economy rebounds, so your company can be in the 10% that makes it.