Many companies and businesses have already learned that the COVID-19 can have both positive and negative consequences. Of course, the bad news is that we’ve experienced a massive change in retail and other economic branches. However, the good news is that people are making their way to the market by bringing fresh ideas and creating the services we need at these hard times. So, let’s pay a bit more attention to the startups and see how they’re surviving the economic crisis.
What Happens to Startups during the Coronavirus
Launching a startup is always a risk, but so is investing in one. Many entrepreneurs refuse to invest in startups because they are simply not sure about their own income. Of course, the financing of startups has dried up. The fundraising market is now slowing down, at least for a while.
Partnerships and deals that seemed solid don’t work as they should. Being isolated for many months has led to severe disruptions in global supply chains. Many companies have faced the need and difficulty in finding an alternative supplier. However, many experts acknowledge that the crisis is a great chance to build a company that meets the needs of the real world. Having an idea to build one is definitely cool, but where should you, as a startupper, get money to launch it?
It is said that inevitability is the basis for new discoveries and inventions. And this is especially true during a financial downturn. The recession is causing problems for which people need innovative solutions. And the coronavirus has caused a very specific set of problems that startups can solve.
The current pandemic has sparked a flurry of innovation, with small businesses filling in the gaps left by big businesses (like local food deliveries when supermarkets can’t keep up with demand) and business innovation generating new services (like online courses). Startup business is innovative, it quickly adapts to the needs and challenges that arise every day and is exactly what the world needs now.
6 Tips to Make Your Startup Work
We’ve analyzed a bunch of articles and expert advice for you to collect the best ways of how to survive a recession in startup fundraising. Check them out now for preparing for economic collapse survival.
Change cash management
If you are asking yourself how to make money in an economic collapse, the answer is that you have to learn how to spend less. Summarize how much money you spend each month. How much is spent on mandatory expenses (those that you cannot change) and on variables (salaries, consultants, commissions, travel, and so on)? Look at your actual monthly income. Not your forecast, but your actual income each month. If you are an early-stage startup, this number may be zero.
Subtract your monthly gross benefit (first amount) from your monthly income to get a net burn-out rate. If you make more money than you spend, you have positive cash flow. If you run a startup and your income is less than expenses, this number will be negative and reflect the amount that your company is losing (“burned”) each month.
Forget about raising money
Redefine your goals for sales revenue, product release dates, create a new business model and work plan. And most importantly, bring them to the attention of your investors and your employees. Focus people on achieving a plan they understand. As someone who has lived through the last three economic crashes, I have noticed that the biggest mistake a CEO can make is not to make drastic cost cuts at lightning speed. As a result, untimely cost cuts lead to layoffs, while managers live with the hope that somehow everything will magically settle down. Don’t make these mistakes, act right away for surviving a recession.
One of the key elements of survival is access to capital. As a startup or small business, you need to understand that your investors are also wondering how the pandemic affects their business model. The harsh truth is that in the event of a crash, venture capitalists launch their own defenses. They sort their trades and are primarily concerned about the liquidity of the late-stage trades, which have the highest scores. These startups tend to have a high burning rate and need funding to keep from falling. Surviving your startup is no longer an investor’s priority; your interests no longer coincide. So, what should you do? Go slow to go fast, which means that you should persuade your investors to proceed to fund you.
Non-equity cash raise
A large number of offline company owners will look for new ideas and niches that are more in line with current realities. They will count on a larger share than an ordinary investor, as well as on greater involvement and participation in operational processes, which makes them perfect candidates for being your partners.
Analyze the market to avoid misinterpretation
There is a definite trend in the types of businesses that are opening and thriving now albeit in a pandemic rather than a recession (yet). They all demonstrate a clear understanding of what potential customers need. The advantage of these businesses is that there is no reason why they shouldn’t continue to operate successfully when it’s over. While some elements of life return to normal after the pandemic ends, businesses that meet customer needs and exceed customer expectations can look forward to continued success in the future.
Tune your business model
Today’s business world is not what it was a month ago, and the situation is likely to be even worse in a month. If your business model looks the same today as it did at the beginning of the month, you are in denial and may have fallen out of business. Startup CEOs tend to be optimistic, but you need to quickly rethink your customer and revenue perceptions.
If you are working in a B2B model, ask yourself these questions: have your customers’ sales decreased? Are your clients closing for the next few weeks? Are people getting fired? If so, then whatever revenue and sales cycle forecasts you had are no longer valid. If you sell directly to consumers (using a B2C model), consider if you have entered a multilateral market (when, for example, some consumers use the product and others pay you for data).
Is it possible to start a successful business during a crisis?
Yes! Some of the world’s largest companies got their start during the recession. The economic downturn could create a number of unexpected opportunities for entrepreneurs seeking to innovate. Here is an economic collapse survival guide from well-known brands.
This is a true startup success story. FedEx began as a Fred Smith university project during the depression of 1969-1971 and has grown into a nearly $ 7billion business.
In the 1950s, after the Korean War weighed down the U.S. economy, two brothers in Louisiana decided that Americans needed fast, affordable food. Already equipping their own burger, they got the public interested in their product as much as possible. And scaled quickly, selling franchises for their businesses. The rest is a delicious story.
GM did not start during the recession, but it was the impetus for the company. In the early 1900s, the founder used economic uncertainty to buy up small manufacturing facilities that were struggling to survive, and thus built his empire.
This global tech giant began operations in 1975, during a period of high unemployment, rising inflation, and stagnating GDP in America. Want to replicate the success of billionaire Bill Gates? Now is the time.
Summing It Up
There are many reasons why a recession might actually be good for startups. Not every business will succeed in the current climate of financial uncertainty, just like at any other time. But here are a few reasons why a downturn could be a good opportunity for startups.