Questions and Tricks that Could Help Save Your Startup.

Business Talk: McKinsey’s comments and responses to the Corona virus outbreak.

7 April 2020

Survival strategies for Startups at corona times.

We look at 3 articles focusing on the struggles of startups and giving some useful advise… even if rather common sense, as there really is no magic stick (see links below).

Synopsis:
The articles stipulate, like many others, that the crisis will fundamentally change the economy. Many companies are trying to figure out when life will be back to normal, but that may not happen, so businesses need to change with it.
We start with the 5 questions to ask yourself as a founder…

• What is possible for my business in this crisis? Ask yourself this honest question… startups should think about the long term: “In the long run, whatever new normal turns out to be, is that better, worse or the same for my startup? Now is the time to revisit your purpose. Rethink your mission statement. Accepting what isn’t possible is an important part of building resiliency.
• How will my business survive in the long run? Buy time… set a goal for each company to have at least 12 months of runway. Mostly this means 25% – 50% reduction in burn, often via significant pay cuts across the team. “Your long-run plan won’t succeed if you only have cash for three months“.
• How can I make lemonade from lemons? That is, how can I pivot? The solution offered before the crisis no longer represents the same value to Customers as before. To survive and reach for opportunities in the current economy, a successful pivot might be the key. The issue is: some start-ups will find new opportunities to serve customers, but not necessarily new ways to generate revenue… Still even just surviving will make those stronger.
• How can I make sure our pivot presents opportunities for growth? Already, if one is focused on serving customer needs, you are halfway there… then once again: test new ways quickly and efficiently.
• How can my business raise funds during a crisis? Seed-stage fundraising will be especially hard. In this environment, there will be less capital, but also less competition. Weaker start-ups won’t get money at all… That’s good for the ones that do get money.

This is especially the stuff of in the second article:
Drying-up funding is bad news for the more than 2 Mio. people employed directly by venture-capital-backed private companies in the U.S. Last year, investors poured $136 billion into U.S. startups… for some entrepreneurs, discipline disappeared.
The belief among startup founders in recent years was: “If you throw enough capital at it, you eventually figure it out… When you have an overabundance of capital, you don’t have to prioritize as ruthlessly. Right now you have to make some really hard decisions.”
Conquering founders were following a go-big-or-go-home approach. Even as investors grew less tolerant on unending losses, most startups still kept the focus on growth. These times are over now: from “move fast and break things” it’s “cut fast and cut deep.”

The third article reckons that, out of necessity, most companies have shifted their mindset from progress to survival, temporarily turning their backs on innovation, strategic development, and new partnerships. No two startups are the same and the problems we face are unique to us. However, below 3 hints are probably useful for the startup community:
• Learn how to be productive, even in isolation. A startup’s ability to be productive is due in large part to its team’s morale… Keep fostering a collaborative environment as much as possible, to stimulate motivation, communication and channel energies.
• Focus on what you can control, then inject it with steroids: Improve the quality of your products, so you’ll be stronger after stagnation is over. Concentrate on your strengths.
• Spend every dollar carefully, and if you run out of it, get creative, e.g. spread ownership, check emergency funding schemes, etc.
…

My take is:
• Start-ups are particularly exposed, as more fragile. They usually rely on a single idea, have feeble revenues and little fat. Most important: they have already invested blood and sweat in it, and are at risk of being too obsessed with it and loose touch with reality. And yet, “pivoting” is easier said that done. I’d like to see figures of businesses who succeeded in this, once is all over…
• Of all small businesses that started in 201X:
– 80% made it to the second year;
– 70% made it to the third year;
– 62% made it to the fourth year;
– 56% made it to the fifth year.
Many of those that failed did so because they scaled up too early, not because their idea was bad, or because they couldn’t find their customer.
So… Corona offers a 101 lesson in management, or better: a reminder.
> While following developments in the market place, the #1 wisdom to keep in mind is to watch your cash flow and to stay on top of your spending.
> That points to another pair of useful virtues in these times: work hard, and stay humble…