How to Position Your Startup to Weather the Storm
While the global health crisis has sparked an economic recession, innovative entrepreneurs can find ways to leverage the situation to move their businesses forward.
Opinions expressed by Entrepreneur contributors are their own.
Over the course of the past several months, we have entered the worst recession in recent history, and the uncertainty is having a ripple effect on entrepreneurs everywhere. Businesses are plotting their next moves and conserving cash in every way possible, hoping to survive the next few months however they can.
The dominos are falling fast. Jobless claims are through the roof, and countless retailers will likely go out of business. It's not all gloom and doom, though. Venture capitalists are still sitting on record amounts of uninvested cash — an estimated $189 billion as of last summer, to be exact. They are currently holding their money close to their chests, but they will put that capital to work once the dust settles.
A similar phenomenon occurred during the 2008 recession. Seed funding was the first thing to scale back as venture capitalists invested roughly half of what they were investing each quarter just two years prior. The venture market faced depressed valuations for 18 to 24 months, and startup growth slowed because they had less to spend. Things were tight for about a year, but seed funding snapped back. Once the storm blew over, there was capital (known as dry powder) that needed to be put to work.
The short-term outlook today is worse than in 2008, because the global economy has shut down. Companies that weather the storm will likely have open-field running for the next few years as this will squeeze out any competitors that aren't capital-efficient.
Unlike the 2008 crash, a systemic failure or an overvalued asset didn't cause this crisis. This means a more positive midterm outlook as there is a pent-up demand for businesses — especially tech. According to IDC, by 2022, more than 60 percent of global GDP will be driven by digital products. This crisis is likely to speed that up and push the percentage even higher.
In the long-term, I'm more apprehensive. There is no way to predict what might cause our next economic failure, but we'll be in for a rough time. If that failure happens too soon, the outlook is bleak because this has essentially exhausted our quantitative easing efforts — and we have already lowered interest rates to near zero. These measures will keep things afloat in the short to mid term, but there might not be enough levers to pull if things get messy in the future. Only time will tell.
You can't predict the future, but you can focus on the opportunities at hand while we wait for recovery. This is not a time to shut down and quit; it's a time to leverage the situation to move your businesses forward. Prepare your company for an upcoming tailwind by following these three tips:
1. Maintain a strong cash position.
Take several measures to protect your cash. Work with your vendors and banks to stretch payment terms; speak with your finance team about pulling bank lines and exploring zero-interest credit cards; and have a contingency plan in place with triggered events based on cashflow. Beyond that, many people are working online because of shelter-in-place and remote work orders, which creates the opportunity for you to consider what you can sell to meet their needs.
You may also consider applying for disaster loan assistance from the U.S. Small Business Administration, and keep an eye out for legislation that could affect your company. For example, the $2 trillion stimulus bill will allow companies such as Square, PayPal and Intuit to offer emergency lending to small businesses.
2. Identify new target industries and see where you fit.
A handful of industries are doing quite well during the coronavirus pandemic. For example, grocery stores and food delivery services are seeing huge spikes in sales and growth while restaurants close their dining areas and people find ways to order takeout. So are tele health brands, ecommerce companies, video game developers, internet service providers and data centers and cloud providers. Demand will continue to expand in these areas over time, offering an opportunity for your company to swoop in and provide a much-needed product or service.
You also could follow in the footsteps of companies such as Tesla and Fiat Chrysler by temporarily offering a product that helps slow the spread and save lives. Things are changing by the day, so watch the headlines and pay attention to what other businesses are doing in light of the crisis to understand how they could help you — or you could help them. Contact your local government and hospitals to learn more.
3. Make self-care a priority.
As you work hard to keep your company afloat, remember to also budget time for health, wellness and self-care. This is an excellent opportunity to embrace meditation, and countless apps can help guide you toward a healthier, more positive mindset. Cooking, cleaning and other household chores might also distract you from feelings of anxiety and uncertainty.
While you're at it, remember to exercise. According to Harvard Health, just 15 minutes of daily jogging or walking can reduce your risk of depression. After running cross-country and track in college, I put running on the back burner when my entrepreneurial career took off. That changed, though, when I found myself overwhelmed and overworked. Running has become my therapy, and it helps me regain control of my thoughts, reflect on important decisions and achieve mental clarity — all of which are key to showing up for your startup as your best, most passionate self.
The crisis illustrates why it's more important than ever to build economically sound, agile companies that can withstand economic volatility. For the foreseeable future, the days of burning gobs of cash to grow at all costs with no path to profitability are gone — but sustainable growth will be the new hot topic.
Across all industries, this uncertain world and economic slowdown can still spawn incredible companies that shape our future. Some of the world's most impactful companies were created during hard times. So hunker down, be vigilant and stay positive. Light is at the end of the tunnel.