COVID-19 has plunged the global economy into a now inevitable recession. Businesses of all sizes have been impacted, but startups and small to medium-sized businesses are suffering the most.
Overnight, many startups have seen all of their clients become “at risk.” With less disposable income, their business operations may slow, along with sales. External support will be hard to come by, as investment in startups is likely to tank by billions of dollars this year.
Many CEOs and especially new founders have responded to this unexpected turn of events in a knee-jerk fashion, throwing their clients discounts like confetti or firing half of their staff, without thinking about the long (and short) term impact to their business.
However, as C.J. Redwine puts it, “Losing your head in a crisis is a good way to become the crisis.” Many leaders will have to take drastic measures to stay afloat, but they should do so with a strategy that places the long-term health of their business as a priority.
To survive and recover, we first need to set our priorities straight. Right now, that means keeping your existing customers, not bringing in new leads or boosting profits. Keep that in mind and you’ll be able to adjust your business plan, budget and team accordingly.
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Here are five things you should do now, and what you can learn from this experience for the future:
- Cut your costs
Before all else, businesses will rightly seek to cut costs. The first question you should ask yourself when deciding where to cut back is: “What is nice to have, and what is essential?”
Any products, services and expenses that embellish your business product, client experience or staff wellbeing should usually be considered before anything that will impact your company’s operations.
If after this step your budget is still starved, ask yourself the tougher questions: What looks essential but could be cut down on without taking too much of a blow? What is a reversible cut (i.e. hardware, software, service providers), and what is an irreversible cut (i.e. letting go of in-demand team members like developers).
One budgeting strategy is redistributing. Pull resources from marketing to focus on customer service. Your business will not die if you reduce your Facebook ads budget, but it will if you slack on customer service.
I would also recommend stopping research and development operations if you’re still in the red. As tough as it is, this is a non-essential sector for the time being, and you may have to consider redeploying team members or cutting down on freelancers or contractors.
Don’t be overzealous when tightening the belt. The aim is to keep the whole machine running, just on a lower gear. You’ll still need certain areas to be working at optimal capacity, such as customer satisfaction. But every business will have differing approaches that suit them best.
There are two ways to deal with crisis:
- Go on the defensive: Cut costs, pull resources behind areas most important to maintain relationships with existing customers.
- Go on the offensive: Play the riskier game of assessing your runway, and then going pedal to metal to acquire new customers by driving resources to sales/marketing.
While acquiring new customers may be at the bottom of the list for some startups, others may find a way of adapting their product to the needs posed by the crisis. Their strategy may be to invest more in their sales process, to capitalize on the current demand for their product or service.
As your business saves on these extra costs, you’ll start thinking about how to better plan your expenses in the future. If you can keep your doors open while only cutting superfluous expenses, good on you. But it’ll also show you where you were spending impractically, which is something you don’t want to happen again.
- Be lean but not mean
You’ve dealt with your budget, now see where you could be saving time and resources. Assess all the different sectors of your startup. Can you save money by redirecting resources to the most at-risk areas of your company?
Project your worst-case scenario a few months from now and consider what areas of your business will struggle the most.
Time is money, even if we’re working from home. You’ll need to rethink the best way your employees should be using that time. Assess how many meetings are essential to core business, and trim off the extra fat. While some meetings are essential to ensure different parts of the team are heading in the same direction, others could probably be cut to open up more time for client-facing business.
Another practical time saving tip involves automating certain processes by buying specialized SaaS. For example, if you’re spending a lot of manpower chasing up client payments, you might want to acquire a payment tool or use a payment platform like Stripe. Consider if it’s worth the extra expense to free up that extra staff member.
By making your startup leaner, you’ll probably pick up some innovative solutions, such as moving face-to-face meetings with clients to virtual meets. If they work well, you can make these permanent. But again, don’t overreach here. You don’t want to end up losing the value of being hands-on with clients, or of having the people who work together be able to communicate face-to-face regularly.
- Keep clients happy
This is where you come back to your business strategy.
Your clients may be weighing the pros and cons of keeping their contract with you, and you want to make yourself indispensable. To do so, align yourself with your customer’s needs. Do your research. How have they been impacted by the pandemic? What else is happening in your customers’ lives right now that they may need help with?
Offer more perceived value at little cost to you. Consider giving your clients extra services that only you have: perhaps you can offer up your graphic team’s services to help finalize a product for them, for example. You can also offer extra virtual consultations or meetings and make yourself available outside of regular hours.
Being sensitive to the moment is important to customer satisfaction, as your clients are likely to be experiencing hardship, too. Adjust how you communicate: be prudent when asking about contract renewals, and always make a point of asking if there are any ways you could help them on every communication. Problem solve to show you can go the extra mile. One option is to use your existing network to help struggling clients by forging new, mutually beneficial partnerships.
SaaS businesses can also give users enticing freebies, perhaps in exchange for extending a subscription. The aim is to add value, at little extra cost to your business, for example by offering free consultations, or repurposing existing content into actionable “how to” guides which could help clients improve their current situation.
Be conscientious. If you can find a way of contributing to the fight against the pandemic and the economic downturn (be it with product donations and other contributions, or morale-raising content), you’ll give your business a whole lot more value. You’ll also help connect with your clients on a deeper level that’s harder to break. And in the long term, you could be setting the foundations for a more purpose-driven company.
While you might not have the luxury of spending many resources on this now, once conditions are more stable, you’re going to want to drill down on your business’ social commitments. We’ve all been given a wake-up call and being conscientious in future is a must.
- Realize knee-jerk solutions don’t work
This rule applies to all of the above. Ask yourself if you’d make a particular decision if times weren’t so dire. If not, why not? Would it damage your image irrevocably? Would it compromise your integrity? Set some lines in the sand then don’t cross them.
You’re going to have to rely on your team and honest advisors to get through this moment. Don’t assign all the important decisions to just yourself. Getting others to weigh in isn’t optional.
Take this example: a common knee-jerk reaction is to freely give users discounts. But you shouldn’t be doing so unless you really have to. If you give someone a large, no-strings-attached discount now, especially if they are on a long-term contract, they’ll probably expect one the next time, and the next. If you have to discount a contract to keep the client, put terms and time limits on it so they know it’s an extraordinary measure. And see if you can ask for extra commitment in return, like a longer contract.
If, after careful consideration, you decide to take a drastic step, make sure you’ve explored all the additional advantages you can get from it. You may even be able to turn it into an opportunity.
- Look ahead
If you’re reading this and you’re in the red, something probably went wrong as you were planning for the future of your business: you may have been projecting the numbers, but not the contingency plan.
This is the time to change that. As a startup, the main thing you need to be planning for right now is extending your runway.
Funding is drying up, especially at seed stage. Start the conversation with banks and investors now, not when you have already run out of money. Even if you have a four-month runway; it’s better to face rejections now than when you only have one month left. Be truthful about your financial situation with investors, or you’ll lose them in the long term.
The lockdown is forcing startups to be lean, whether they want to or not. So, ask yourself if the measures you’re taking now could be integrated permanently. If you come out on the other side of the crisis, make sure that you’re never caught so dramatically off-guard in future. Have savings in the bank at any given moment – ideally, at least three months expenditure, but this can vary.
Finally, don’t give in to the temptation of throwing all the lessons learned out of the window once the pressure eases and the cash starts flowing again. Be smart about your startup and always go for stability first—it will always give you a better chance at success.