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COVID-19 Survival Strategy for Startups

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covid 19 startups

 COVID-19 virus is now a global pandemic that has led to social isolation, thus impacting heavily on businesses across the world. More than 1 million are currently infected.

Most countries have canceled trade shows, sporting events, all types of travel, retail, chains, schools, and restaurants, among others. Further, most companies have asked their employees to work from home while retails chains are operating half the capacity.

Smaller businesses and their workers are severely impacted because they have a small margin of error and lower cash reserve for managing abrupt downturns. Therefore the economic and social impacts of the COVID-19 are likely to be profound for years.

The article will provide you with tips on how you can keep your business safe after your family, employees, and customers.

Take stock of Your Burn Rate

You need to consider your monthly expenditure or gross burn rate, which is categorized as fixed expenses such as rent and variable costs, such as salaries, supplies, and consultants, among others.

Consider your revenue and if your business is in the early stages then your income could be nil. The difference between the two figures is your net burn rate. A positive figure shows that you have some cash flow while a negative one means your company is losing.

The next step is to consider your bank account and determine your runway or how many months your business can survive with the present net burn rate.

Evaluate Your Business Model

COVID-19 has changed the way organizations will conduct their business henceforth. It’s expected that in the next few months or years will not be the same, and the situation is likely to worsen.

Therefore evaluate your business model and plan for the future of your business. Are you operating a B2B business? If this is your model, then you must realize that other businesses are closing or laying off, and you are likely to witness a sharp drop in your sales.

Are you operating a B2C type of business where you sell directly to customers? You need to consider the credit card companies if you are working in a multi-sided market where a third party pays you for the goods and services your customers have received. The information will help you to cultivate the burn rate and runway.

The Likely Duration of Convid-19 Effects

The global pandemic may linger a little longer, or the governments and scientists may manage to bring it down in a few months. However, you need to consider what will happen to the businesses and customers in the few months before it’s brought down.

Further, you need to think about the aftermath, such as whether the disease will lead to the world to a prolonged recession. Such factors will help you to plan for the future of your business. For instance, you may consider freezing travel, marketing, or recruitment if the impact is short-term. However, you will be required to reconfigure your business if the effects are long-lasting.

Factors that can help you are bringing your burn rate to nil as much as possible. You can achieve this by laying off and renegotiating the rent down. Ensure that you remain with minimal costs to help you survive.

Further, change your sales strategy; could you sell online than in-person? You may also need to alter your product and service for these changes will align your business with the prevailing condition. The business model may change entirely if the COVID-19 effects persist beyond a year. That means you will have to orient your business around the prevailing conditions such as selling online and delivering to customers during the social isolation duration.

Consider Your Investor

The best way of surviving this crisis is by accessing capital. However, investors are also wondering what will be the outcome of their investments and business model. They may not prioritize your business survival at this moment, and your interests are no longer aligned as before.

Venture capitalists will be busy looking for a new buyer’s market created by this downturn. Thus there are few investors seeking business deals during the pandemic.

Therefore, consider whether cutting your burn rate radically or creating a new business model will please your board, or they will want you to stay the course and stop being distracted. Investors should deposit their next round of funding in your account if they tell you to hold the course.

No matter the investors’ decisions, don’t make a mistake of not cutting your business expenses quickly enough. Otherwise, you will delay and get deeper into a burn rate that can never be recovered. For instance, you can drop favored projects and consider layoffs if the situation persists.

You may also consider revising the product timelines, sales revenue targets, create a new operating plan, and a business model. These changes should be communicated to employees and other stakeholders in order to keep them well focused.

Things to Remember

  • You need to take steps to save your business during this period. The decision may vary based on your present business model. However, consider taking both temporary and long-term measures.
  • The COVID-19 is likely to lead to a recession. Corona-19 will change how people shop, travel and interact. Thus, consider these possibilities when making sales projections.
  • Remember that investors and venture capitalist will always prioritize their interests and not yours. Therefore, you need to act early enough before your burn rate reaches levels that may take longer to recover.
  • You can act with compassion. For instance, you may consider allowing your employees to work from home in support of social distancing. Think of cutting your employees’ salaries before laying them off. Begin renegotiating your rents and other leases now. These measures will help you to save everyone before jumping out of the boat.
  • Don’t run your account to zero; instead, consider taking other measures like creating a new business model such as selling online and delivering products to your customers’ home.

 

 

I'm a passionate and full-time blogger. I love writing about startups, how they can access key resources, avoid legal mistakes, respond to questions from angel investors as well as the reality check for startups. Continue reading my articles for more insight.

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1 Comment

1 Comment

  1. Eugénie Blanche

    27/05/2020 at 19:18

    Virtual buro is especially important at this time, especially if you have clients in a country where you don’t have a registered office.

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