Here's How Start-ups Can Remain Recession Proof
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The year 2019 saw unexpected twists and turns for the start-up ecosystem across the world.
Just when the start-up ecosystem was said to be reaching a new pinnacle, the valuation bubble burst and changed several dynamics of the ecosystem. Even the likes of SoftBank, an investor who was said to have-it-all, had to bend, introspect and revise strategies. Additionally, the year also saw start-ups changing their strategies. Now, profitability is set on a higher pedestal than all out-growth, thanks to the examples of cab-hailing company Uber and proptech start-up WeWork.
The biggest takeaway from, among the things that have happened, clearly is that start-ups must be ready to weather all sorts of storms. Recession is one such storm that is capable of unnerving any entrepreneur.
Are Indian Start-ups Affected?
Recession is a phase that can topple businesses. But how much are Indian start-ups affected? Arushi Jain, executive director of StayHappi Pharmacy, an online retail pharmacy start-up, says, “I feel that start-ups are growing exponentially and this growth is independent of the recession.” She further added start-ups are almost immune to recession.
This year saw several start-ups raising capital and becoming soon-to-be-unicorns and unicorns. Fundraising has, clearly, become an easier activity than it has ever been before.
So then what must a start-up do to remain recession proof?
To weather the storm of recession, start-ups—first and foremost—must have a well thought-out contingency plan, according to Saurabh Chopra, co-founder and CEO of BalleBaazi.com. In business terms, a contingency plan helps organizations take steps to arm itself against potential negative events.
Chopra adds, “When sales figures start dropping, young businesses must have enough cash flow to keep operations afloat. If start-ups are looking to raise funds during recession, they must analyze the risk involved.”
Synthetic biology start-up, Zymergen Inc.’s founder Joshua Hoffman raised $400 million from SoftBank last year in December. The reason turned out to be not growth but “preparation for a looming recession”.
“We wanted to have some fat on our bones for sure. The time to raise money is when people are giving it to you,” he was quoted by Bloomberg.
Sanchita Jindal, founder of OSOAA, a wellness product, says, “We always look into our cash reserves and prefer doing cost-cutting on company expenses.”
While several risks are associated with recession, it may have its share of hits as well. Chopra says, “One must remember that with a recession, there is less competition for start-ups that can continue to grow.”
To conclude, if an impending doom of recession is about to strike, then start-ups must become alert about cash flows and take steps to keep a check on the same.