Startups are the baby wildebeests of the pack. In times of economic uncertainty, young businesses get eaten first.
The world of entrepreneurship is a risky one. Even if you do everything right, there’s no guarantee that your business will thrive.
This long economic boom we have seen over the last 10 years will end. I do not claim to know when or how, but a correction will come.
Creating a successful startup is all about hard work, good execution, luck, and preparation. Here are some essential steps to make sure you have the latter covered.
Have a clear vision and mission
This is pretty much essential for success regardless of economic stability. But it is especially important in tough times when things are more competitive and there is more uncertainty. The teams are united under a common goal, will have a much easier time adapting to more financial pressure.
Instead of panic taking over, resilience is born. The team wants to keep pushing forward because the mission is never about the individual, but instead, the collective good a company can create.
The gist is to create a mission statement that communicates what you do, why you do it, and why it makes the customers’ lives better.
This statement acts as both a customer-facing marketing tool and an internal cornerstone to base your decisions and align your team.
Know your numbers
It’s not enough to have a great product or service. You also need to be able to make money from it even when sales are down. This means creating three proformas at the beginning of every cycle. One is the best-case scenario, one is your actual best guess, and the last is the worst-case scenario.
Your business should be able to properly function and push through all three of the projections.
This means having a detailed understanding of your unit economics, burn rate, and runway. Know where you can afford to cut costs, and where you can not compromise.
The reason for this is that you never know when an economic downturn will hit. It’s best to be prepared so you’re not forced to make any knee-jerk decisions at the moment. Your ability to adapt quickly to a changing economic landscape is vital to keeping your head above water.
Startups live or die by cash. Having a 6-month cushion for expenses will help give you and your employees peace of mind. A little bit of breathing room will also help stave off desperation. It will contribute greatly to your capacity for clear, pressureless decision-making.
Build a great team
A great team will push through when things get tough. A poor one will disintegrate.
When assembling your team, think about complementary skill sets and cultural fit. It’s also important to have a diversity of opinions represented in order to make well-informed decisions. Keep the team lean and effective.
Over hiring is one of the great startup inefficacies. Ten expensive but committed and driven hires are so much better than twenty mediocre staff.
Building a high-caliber team is just as much about the culture you create than the individuals.
Uniting around a common goal, creating a culture of transparency, and paying your people well, will create loyalty that will last through tough times.
Stay lean
The best antidote for low sales is low costs.
This means keeping your burn rate low and having a runway that will sustain you through tough times.
There are so many ways to keep costs low that many skip because they ‘have it in the budget’. Make strategic partnerships that lower cost, implement team revenue share, and please, I’m begging you, cancel software subscriptions you are not using on a regular basis.
This doesn’t mean skimping on things like customer service or R&D, but it does mean being mindful of expenses.
Don’t get complacent
As a startup, you are at a disadvantage. You have fewer resources, less cushion, lower access to talent, less brand recognition, ext.
The only advantage you have is flexibility. Startups can pivot drastically in comparison to established companies. Pivots save startups if execute quickly and effectively. This requires a deep knowledge of the industry you are in and the ways in which it might be shifting.
The key is to always be learning. Constantly ask yourself how you can improve your product, how you can make it easier for the customer, and how you can differentiate from the competition. Even if larger competitors come to the same conclusions, you are nimble. Beat them to the punch.
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No one can predict the future, but following these tips will help you weather any storm. Startups that take the necessary precautions are more likely to survive an economic downturn. And, who knows, maybe you’ll come out the other side even stronger.
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