Recession Looming on the Horizon? Startups Should Look to Stay Liquid During Lean Times

It’s hard to miss the growing concern about a recession, especially as several economic indicators are pointing towards one. While a slowdown in the economy impacts all businesses, it can be especially difficult for startups.

There are several reasons for this. For starters, many founders have little experience navigating their businesses through a slowdown. Also, a recession can make it harder for a startup to find customers or investors. Finally, the odds of success go way down as even the best run startups can fail to keep a grip on their cash flow when things aren’t going as planned.

However, this doesn’t mean that a recession spells doom for startups. Here are four ways in which a startup can survive a recession.

Staying Liquid

While building a startup is all about expanding a customer base, doing so in a slowing economy can be a challenge. As such, founders need to be even more focused on their cash position than ever before.

This starts by having a working financial model and then constantly comparing the model to actual results. After this, startups can begin to understand the key drivers for success including how to attract customers and how much it costs to develop and deliver a product or service.

From there, companies can start to make decisions about their cash position, such as when to go ahead with planned purchases. By having a working model to rely on, they can determine the impact of those decisions.

Startup lender says, “Obtain all of the information necessary to make an informed decision before moving to a lender. This includes pricing considerations in the market, seeking outside investors, or the move to financing.”

Tough Decisions for Startups Ahead

Starting a business when the economy is good is tough. Starting a business when the economy is slumping can feel like rolling a boulder uphill. To be successful, startup teams need to be able to make the tough decisions.

Sometimes this can mean deciding who gets paid and who doesn’t, or even who to fire – even though they are doing a good job. These decisions are never easy, but they can be hard even for experienced leaders.

Sometimes founders will even need to make tough decisions that impact their personal lives. This might include foregoing getting paid altogether, taking on a second job, or even putting startup dreams on hold.

Be a Little Selfish

Kids are taught that “sharing is caring.” However, as a founder during down economic times being generous could undermine the business. Remember, business owners are in a pitched battle to keep the doors open and as such, will need to find opportunities to generate revenue and reduce costs in every way possible.

For example, founders might want to reconsider a “freemium” model if they are in a position where they need to survive until the next funding round. Analyze pricing structures to determine areas where the business can be a little selfish.

Startup founders will also need to deliver an excellent customer experience – every time. This way, customers will not mind paying a little bit more.

Embrace Tactical Fundraising

Having a “down round” can be the kiss of death for a startup. However, valuations have gotten so high that it is inevitable that a recession will cause many founders to rethink the price tag they put on their businesses.

Given that some sort of repricing will need to happen, embrace “tactical fundraising.” This breaks down fundraising campaigns into a step-by-step approach to maximize chances of success.

Founders should also rethink how much money they are trying to raise and how they plan to use the funds. For example, spending plans should be centered around getting new customers and not on building out luxurious corporate offices or paying bonuses. Doing this will give investors’ confidence in the plan, making it easier for them to say yes.

Companies should let a recession kill their fundraising plans; instead do the little things right and focus on getting investors the return they seek. Doing so will make it easier to get the money founders need to turn their dreams into a reality.

Anne Lawson

Anne Lawson is a British writer who keeps her eye on business and trending issues that affect us all. She loves to delve into the real story and give us interesting tidbits we might otherwise miss.