Fight or Flight: Surviving an Economic Downturn.
The stronger your business is, the less likely it is to be affected by risks – if and when they do eventuate – or unforeseen events. Strengthening your business isn’t just about financial management, it’s also about strategies to retain and broaden your customer base, marketing your business affordably, keeping morale high amongst your staff and improving business practices.
Whether or not we have another downturn pending is yet to be seen, but if so, the 2022 crisis will represent the third major tech downturn following the Dot-com Bubble and the Great Financial Crisis.
Interest rate hikes and rising inflation, growth in debt to GDP ratio, the war in the Ukraine, increases in energy prices, changing consumer habits to a post Covid-19 market, supply chain issues, and more, could all be contributing factors to the stock market (particularly tech) declines. And the markets reacted to all of these.
Every organisation is unique and isn’t affected by downturns in the same way. Nobody has the same balance sheet and not everyone struggles to raise funds in difficult circumstances.
If you open any newspaper or tech blog you can convince yourself the sky is falling and that the ‘good times’ are never coming back. We need to remind ourselves of an important fact: in crisis lies opportunity and that there is light at the end of the downturn tunnel.
Startup CEOs, Founders and teams are facing what will likely be among the most challenging climates. To thrive, organisations must first survive:
Protect your runway for at least 24 months
Before blindly cutting spending, it’s important to be strategic and deliberate. To plan for the future, identifying key economic uncertainties that could impact your business is vital. It’s then time to conduct scenario planning to determine the best, middle, and worst case for your business.
If you don’t have really efficient customer acquisition, then you should focus on improving the efficiency of your growth. Give yourself the time to innovate and drive efficiency, ahead of scaling. It will likely be impossible to raise funds until you can show high growth and underlying profitability.
The main purpose of increasing/maintaining your runway is to provide options for your business and create opportunities to identify avenues towards growth. Venture-backed startups expecting their runway to last until they raise their next round of funding, could find their organisations being stress-tested in this new reality. These anticipated rounds may no longer happen, or at the very least could be delayed.
Make customers a priority
Maintain excellent customer service. It will help you to retain existing customers. This also creates a greater chance of not only keeping you existing clients but to increase your client base as well.
Making customers a priority in an economic downturn may also involve:
- running loyalty or incentive programs
- adapting products and services to suit your customer's current needs
- diversifying your business to minimise potential damage from the loss of a significant customer.
During a financial downturn it is particularly important to find ways to retain your existing customers by providing a good after-sales service. If you are providing a valuable service in a downturn, then when things recover you will be highly sought after.
Evaluate, quickly, if you need to downsize your team
Probably the most difficult and painful thing you do as a CEO/leader because it involves people, but it’s often not so much about the what as it is the how. Empathy and speed are key.
Nothing is more demoralising than multiple rounds of layoffs. It creates an immense amount of anxiety amongst remaining employees. Redundancies upend someone’s life at the worst possible time so remember to be as human, kind, and generous as possible.
Speed is important, but it’s imperative you don’t cut corners in the process. Plan effectively and consult with the organisation’s advisors, investors, lawyers and others who have had to go through similar experiences.
It is also vital to keep all channels of communication open with the remaining employees. The peace of mind you give them is crucial.
Be optimistic about opportunities
If you think about it, every industry is being transformed with tech. Innovation is ongoing, irrelevant of a crisis, and the potential to reach clients is bigger than ever. If, in this market, corporates are also looking to reduce costs, startups can take advantage of their smaller size / ability to move fast and take risks.
Prioritise cash and don’t assume you’ll get funding
“There has never been more capital available to invest in startups in the past decade, despite the caution in deployment. According to data firm Preqin, venture capital AUM (assets under management) reached a record of $2 trillion.
It’s come down a bit given the performance of public markets, but venture capital dollars looking for deals are higher than pre-pandemic. It’s not just that there is more capital in the market, but also that the venture capital market is much more developed. There are different types of investors involved in venture, there are different financial products offered to venture backed companies and there’s a more active M&A market for venture than ever before.”
(Source: vc cafe)
There may be money in the pot ??but VC’s may make fewer investments as they focus on their portfolio and wait for things to stabilise. It’s important to think ahead and to raise money when you can when the cheque books are open. Once you’ve been through a downturn, you realise more than ever the advantage capital offers in coming out stronger.
It is certainly still possible to raise money, but investors have become cautious and will be much more selective in making new investments. It’s important to stay ahead of the game.
It’s more important than ever, especially in the midst of an economic downturn, to ensure that the team you have is the right one. Especially product and engineering teams. Those teams have the most leverage to help you survive.
You can find yourself either laying off employees or needing to hire them and, if you have cash, this is potentially a great time to hire some amazing people. Securing your next wave of strong hires will allow your business to gain a competitive advantage when the economy improves—whenever that may be.
Many roles will always be competitive even at uncertain times like this. But, while you may believe you’re reaping the benefit of more active job seekers during a downturn, know that your competitors may be actively hiring for those same positions.
In an economic downturn, your company may be closely monitoring its financials, and a hiring freeze may be on the table. This leaves an even smaller margin for error. Every hiring decision is critical - you must make the right hire the first time.
4zero is a new breed of talent solutions partner that focuses on aligning people and companies based on shared values.
Our modern-day take on the challenges of hiring applies a data-driven approach to matching the right people to the right companies. Our behavioural-science based process allows our customers to become stronger businesses by:
- Hiring smarter
- Curating phenomenal cultures
- Reducing rates of attrition
We work with hyper-growth start-ups using technology to make a positive impact and who are committed to sustainable business practices. In these unprecedented times, agility is key and our SEED product is designed to offer complete flexibility for startup / scaleup businesses benefitting from both deferred fee payments (across 6 months) and placement guarantee.
If there is indeed a market correction, look for opportunity. It's about thriving not just survival and it’s imperative to take action now, and come out stronger on the other end. Preparation is key.
Some of the world’s best companies were built in a recession.
For more information on how others are winning in the current climate or about how we can help you, contact one of the team:
UK & Europe: +44208 089 8300
US: +1(929) 566 2860