“It’s time to tighten your belt” or “face a period of lean cows”, are phrases that we have been hearing in recent months due to the economic crisis that is being experienced worldwide and that is affecting us all, even those who they had never lived the experience before, as is the case with startups. It was Y Combinator, the renowned American business accelerator, who set off the alarm when last May it sent a letter to the members of its portfolio of companies recommending them to “prepare for the worst, because no one can predict how bad the economy will get, but things are not looking good.”
It is not the idea to become pessimistic, because if we look at the facts from a historical perspective, we can conclude that economic cycles have periods of decline and then others of recovery. But while we wait, what we can do is put measures in place to weather these tough times and help businesses survive successfully, especially when you consider results like the CNBC survey of small and medium-sized businesses, where 8 out of 10 business owners expect a recession during 2022.
Given this scenario, one of the first pieces of advice we can give to startups and ventures is to focus on offering solutions that solve real problems through an effective, simple product offering that has a market opportunity. It is true that during the boom times many emerging companies obtained million-dollar rounds of investment for their businesses, but it is now that we will see if these ideas are really sustainable in the long term, which is why it is essential to work with a realistic and scalable business model.
It is also very important to allocate expenses to areas that are really necessary and extend cash flow estimates as long as possible. The ideal for any company is to grow, but if this is not possible or the income will be variable in the following months due to the recession, the premise is to remain financially sustainable, focus on business consolidation and prioritize resistance over explosive figures.
Now more than ever, new companies must also listen to the voice of those who have more experience and have lived similar experiences. Investors and entrepreneurs can be very useful as mentors and companions in this transition to a more challenging environment that requires a readjustment of strategic priorities.
Another important factor to consider is talent retention. We need strong and solid teams to carry out our plans and it is in difficult periods that people’s mettle is tested. Many of the successful and profitable ideas that we use today were born against the odds and were able to move forward thanks to the creativity and intelligence of men and women who sought alternative paths or turned to allies who helped them carry out projects. That is why it is important to value those with whom we work, listen to each other and encourage “outside the box” thinking, something that can bring us new answers to what we are facing.
And finally, patience and strength. As adverse as the outlook may be, it can also be an opportunity to analyze what we are doing, adapt to market requirements, plan the steps to follow, and pay attention to the signs. All experiences serve to learn and I am sure that the enterprises and startups that manage to overcome the crisis will have more and better tools to make their companies solvent, comprehensive and truly competitive.