Navigating an economic recession can be challenging for startups, as they face particular difficulties and uncertainties. However, with careful planning and tactical approaches, new businesses can endure and prosper during difficult economic conditions.
Build your startup strong to survive the recession and position your business for long-term success. This blog post will explore five key ways new businesses can survive a recession. Let’s delve into these tactics and find out how do startups can survive a recession.
Table of contents
5 tips to protect your startup in a recession
1. Embrace and support your outstanding employees
During recessions, staff often reevaluate their career paths. If they begin to question the viability of the business, they may encourage calls from bigger companies in the market, regardless of their possible equity benefits. These companies can offer higher current revenue, incentives, and superior benefits.
To proactively address this issue, setting aside time to develop relationships with your best employees and gain an in-depth awareness of their mindset is essential. One common assumption among staff is that their equity stake depends solely on the last round of funding.
If the business experiences down rounds, it can trigger anxiety among staff members. Losing top talent may drastically affect your company’s success. Hence, managing and maintaining your momentum is crucial to keep the top talent you already have and drawing in new talent.
Accepting and backing your talented employees shows a genuine dedication to their development and well-being. Take the time to understand their requirements and worries, and take proactive steps to address them. Doing so can develop an enduring and dedicated workforce, establishing your business for long-term success.
2. Make adequate use of your existing resources
In times of a downturn, raising capital becomes significantly more challenging. To ensure survival:
- Meticulously plan how to continue your business with the existing capital.
- Spend money solely on efforts that enhance your good or service or drive new sales.
- Remove non-essential expenses and scale back on fresh initiatives, concentrating only on those with a high chance of yielding near-term success.
Cash becomes the dominant force during recessions, so securing enough money to get through a recession is essential until you achieve recovery and growth. Consider acquiring a line of credit in addition to your equity capital. Even with rising interest rates, getting a line of credit is still less expensive than looking for fresh equity funding.
By taking proactive steps to widen your possibilities, you improve your business’s capacity to overcome the difficulties of a recession. Prioritise optimising existing resources and expenditures and use available financial options to ensure your company’s sustainability until economic conditions enhance.
3. Prepare for workforce reduction as a last resort
When all other options for preserving capital have been exhausted, reducing your staff may become unavoidable. However, before considering such steps, explore every possibility to preserve resources, including selling assets or reducing non-essential costs. Only when no viable options are available you should consider staff reductions.
Identifying the people who can be required for your company’s growth is an extremely challenging decision for any leader. However, it is also an essential step in achieving the success of your business. If layoffs become required, it is essential to plan and prepare accordingly. Allocate budgetary funds for severance payments and allow ample lead time to affected employees by informing them prior.
Failing to plan for layoffs can lead to an essential breaking point, requiring you to make hasty and sweeping changes overnight. If, for example, a hundred layoffs that could have been done earlier in an economic downturn but were postponed, a further drop in earnings might require you to let go for double or more.
4. Understand the significance of your product to consumers
For companies responding to clients (B2C), a key consideration is the extent to which consumers will continue using your product during a financial recession.
To determine this, it is useful to survey your existing customer base. Gathering data from representative data sets can provide knowledge and predict the potential impact.
For example, if you examine a thousand consumers and ask, “Is this product essential to you?” and 15% of respondents answer positively, you can predict that approximately 15% of your earnings will likely remain stable during a recession.
For companies assisting other businesses (B2B), assessing the relationships your sales team and account managers develop with customers is crucial. Determine customer responsiveness, satisfaction with the product and outcomes, and assess the revenue contribution from the data collected.
5. Foster a resilient company culture
Promoting a resilient business culture is essential for new businesses preparing for a recession. This includes encouraging open communication channels where workers feel comfortable expressing their issues and sharing innovative ideas.
By promoting a culture of innovation and agility, new businesses can adapt quickly to changing market circumstances and identify new development opportunities. It’s essential to enable employees to take ownership of their work, make choices, and contribute to the overall achievement of the business.
This improves morale and encourages a sense of shared responsibility, encouraging everyone to work together towards overcoming difficulties. Furthermore, developing a supportive environment where partnership is encouraged improves problem-solving capabilities and enables the team to find innovative ideas in times of adversity.
By nourishing a resilient company culture, startups can promote a sense of unity, purpose, and flexibility that will assist them in navigating and succeeding in a recessionary environment.
In conclusion, while an economic downturn can be challenging for startups, there are several strategies you can employ to not only survive but also thrive during such tough times.
By diversifying revenue streams, controlling costs, optimizing marketing efforts, focusing on customer retention, prioritizing cash flow, leveraging technology, and being open to new opportunities, your startup can increase its chance of weathering the storm and emerging stronger on the other side. By adopting these practices, your startup can position itself for success.