The startup community is facing an unprecedented challenge. Early stage companies have an existential challenge of a magnitude unthinkable only a few short weeks ago. For the vast majority of startups, dreams of growth and expansion are firmly on ice with the main priority being short-term survival. They will be worried about how to cut costs for the time being without damaging their long-term growth and how to cover the other overheads that can’t be reduced. While the Chancellor’s measures provide some help, drastic action will be required to stay afloat.
However, at the same time, the life of a startup founder is by definition precarious. Mentally these risk-taking entrepreneurs are some of the best equipped to deal with the sorts of rapid pivots and swift reevaluation now required. Calm heads are needed and the ability to take effective action to stay in business. For those raising money, many will need to raise funding sooner than expected and the number of active investors will drop. There are of course ways of mitigating this and startups will look to a number of ways to ensure they get the liquidity they need. With this in mind, I want to look at five ways startups can stay afloat during these testing times.
1) Decreasing the size of your funding round. If your startup is fundraising, one option would be to decrease the size of your funding round to close enough funding to give you a few months runway until activity starts to pick up again. In normal times most startups raise enough funding to see them through 12-18 months, but in the era of corona it may be sensible to reduce this to 3-6 months to increase your chances of closing your round and ensure your survival through this time of uncertainty.
2) Planning for a longer trajectory. With less investors active at this time, it may take longer to raise funding, so you should take this into account when deciding when to start approaching investors. There’s also the chance to start building your investment pipeline now, even if you aren’t converting. Think about ways to engage with investors and start building relationships now, which will then hopefully make it quicker to convert them when the economy starts to pick up again. Networking events and face-to-face meetings are now obviously out of the question, but there other avenues are still available, such as investment platforms, social networks and online events.
3) Cutting costs: With revenues and investment drying up, how do you run your business for less? The government support packages that have been announced should help with staffing costs, while the short-term grants, business rates holiday and VAT payment delay will provide some breathing space. However, you will need to think very carefully about how to cut back on the non-essentials and bootstrap to survive. Businesses may have to decide to hold back on new product development, cut their marketing spend or reduce the hours of third-party service providers.
4) A business pivot: We are seeing so many examples of businesses thinking rapidly to reshape what they offer, particularly community-facing ones with all their customers now indoors. How can you pivot your business to take advantage of this? Obvious options are restaurants and cafes offering home delivery or turning themselves into food shops. Meanwhile some pubs who have shut up shop are now doing alcohol deliveries. Retail businesses have been forced to put their full focus on ecommerce where possible. Meanwhile fitness instructors and gyms are streaming online sessions, which is bringing some much needed distraction to everyone stuck at home. While times are tough now, it will hopefully enable some businesses to discover new business models and build additional revenue streams.
5) Build goodwill at this time: So many businesses are really focusing on helping people during this time of need. The usual order of business of encouraging people to spend more money has been suspended. Helping people whose lives and livelihoods are at risk is the right thing to do morally, and brands that are stepping up to the plate to help out are also being rewarded with positive brand awareness and great PR. From a local Italian offering free home delivery to people who can’t make it to the local food bank to an online meditation app offering its service to NHS staff for free. Businesses are thinking about what they can do to help people at the sharp end of this crisis and they should reap the rewards when normal business resumes. It has also been very encouraging to see the willingness of the public to support their local businesses in any way they can. It is vital that we all stand together.
To try to help as many entrepreneurs as possible, it would be great if you could share any other suggestions you have to help startups to stay afloat?
~Business Game Changer Special Promotion~
By Mike Lebus
Mike Lebus is an angel investor, entrepreneur and co-founder and Director of Angel Investment Network Ltd. He co-runs AIN, the world’s largest angel network with over 1 million users worldwide.
