Until the COVID-19 pandemic is over, survival for startups must be in the foreground. In this short survival guide, we give startups and their owners and managers various tips to help them overcome the crisis and keep control of their companies.
The pandemic is very different from the financial crisis in 2008. Not all companies lose because some companies are increasing in value on the stock market and certain companies have more demand than they were prepared for. In fact, some companies are hiring.
In contrast, many companies cannot use their traditional supply and distribution channels and are temporarily closed or subject to lower demand.
Challenge No. 1
: cash management
First, cash management is the biggest problem that most startups face. Many estimates assume that (in a positive scenario) it will likely take 12 to 18 months for a vaccine to be found and approved, although the effects may be longer after the crisis. Such thoughts raise a fundamental question: How can startups survive during this time?
Companies have to prepare for further locks. Keeping cash for this period is critical for several reasons. While most investors do business, some cannot.
The investment market has also shifted. Valuations have dropped significantly, making it increasingly difficult to bring money into the business. Even for companies operating in high-demand sectors (e.g. healthcare), investors are more cautious if the adjustment to the product market is likely to be more than a year away. In addition, certain options for short-term cash generation are frozen.
On the other hand, startups with little money are less likely to be distracted from their end goals if they get too involved in side shows and can concentrate on developing their core business model. For the next 18 months, the goal is to ensure that they can stay afloat.
Challenge # 2: change ratings
A second challenge in this market is to change valuations so entrepreneurs need to have realistic expectations. The stock market has already collapsed, but could go lower.
Startup ratings have also become more conservative. Funding is more difficult, and companies trying to raise money are likely to lose even more equity. A reality for investors in times of crisis is that their expected returns are often much higher than in “normal times”. During the financial crisis, returns were generally more than twice as high compared to less volatile periods. If possible, it may be worth waiting for the market to clear the effects of the pandemic before collecting money again.
Challenge No. 3: Complexity of managers
Third, leadership has become more complex. Transparency and honesty with regard to the situation are the key to building, building and deepening trust between management and employees. Excitement comes second. Dealing with emotions is just as important as showing empathy and making people feel connected. It is important to stay true to the values and visions.
Business leaders should not only consider mentors, but also a coach who is not involved in the company and understands the reality of your job. Coaching can contribute to well-being, promote the self-reflection of managers and contribute to balanced decisions.
Having to lay off important employees is a traumatic experience. The job market for top talent is still active. This crisis is selective and is affecting some companies while others are thriving. If they fire top talent, they’ll likely find a good deal elsewhere and won’t come back when the crisis is over. This is another reason for startups to be very strategic in cash management for the next year.
Challenge No. 4: Change space requirements
Fourthly, the separation of physical workspaces, particularly collaborative workspaces and incubators, could affect social interaction. Startups rely on intensive personal and social exchange to stimulate creativity and experimentation. Fewer opportunities for direct communication and spontaneous encounters could endanger the growth of the respective startups.
Virtual meetings are particularly effective in drawing on existing social ties, and the integration and use of this digitization movement will help startups emerge from this crisis stronger.
Challenge No. 5: Consider panning
Fifth, it is important to turn your business model around in these changing times. In this crisis, several start-ups in different sectors are changing the way they offer different customer groups added value, for example by going online. The key to success lies in retaining existing customers and offering added value to new customers with possibly different characteristics.
Another consideration is whether to work with complementary competitors and whether resources should be combined to bring new products to the market that may be in greater demand. We saw that 3D printers for protective equipment and distilleries are reused for the production of hand disinfectants.
Responsible management practices and fair treatment of stakeholders are particularly visible during the crisis. Making decisions quickly, transparently and fairly will go a long way.
This article was republished from The Conversation by Felix Arndt, John F. Wood Chair in Entrepreneurship at the University of Guelph. David Crick, Paul Desmarais Professor of International Entrepreneurship and Marketing at the University of Ottawa and Ricarda B. Bouncken, Professor at the Chair for Strategic Management and Organization at the Bayreuth International Graduate School for African Studies under a Creative Commons license. Read the original article.
Published on July 30, 2020 – 06:30 UTC