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Making Resiliency Part of Your Startup Strategy

By June 30, 2020January 24th, 2022No Comments

The COVID-19 crisis that characterized the spring and summer has given way to living and working within a new normal. In the first months of the pandemic, we advised founders to make immediate, strategic decisions to stem losses and capitalize on emerging opportunities.

Now, everyone has somewhat settled into a pandemic-related rhythm. There’s no travel to customers, work is mostly remote, and 2020 forecasts reflect a changing sales landscape. The fundamental question today isn’t whether your startup will survive COVID-19, but instead, how do you financially shore up your organization to succeed despite the uncertainties?

Here are a few insights on how to prepare for the mid-to-long-term, gleaned from working with our founders, advisors, mentors, and peers:

1. Leverage your existing investors for contacts and additional funding. Startups may need some form of bridge capital to make it through the current situation—and they likely need it sooner, rather than later. When the pandemic hit our focus immediately turned to reviewing the cash positions of our portfolio companies. Where needed, we have helped founders pull together critical funding for the near-and-mid-term. As founders adjust their forecasts due to the impact of the pandemic, they should be constantly evaluating their runway.

For those that need additional capital, starting with existing investors and asking them to tap their networks makes sense. In an uncertain environment, investors are more likely to welcome warm leads from current investors who are committing additional capital. What’s more, the involvement of existing investors can accelerate deals and get much-needed capital to founders, faster. A final thought on bridge funding—be prepared to discuss your path to finding and growing revenue and ways to get there more quickly. We’ve witnessed startups put together paid pilot programs and retool their business models to prioritize new revenue opportunities. Such moves give investors confidence in your adaptability and can make an investment more likely.

2. Evaluate your resources and look for creative ways to reduce spend. In a startup, every dollar counts, and there is often little margin for error in the best of times. Founders should ensure they have a handle on cash flow projections and a doomsday plan for controlling burn. Of course, investors will be looking to founders to do their part as well—consider reducing your pay and encouraging the rest of your leadership team to do the same. Offering more equity in place of a lower salary is a smart way to save in the near-term, while still incentivizing your C-suite.

Evaluate your teams as well to make sure that every member is needed and fully engaged. You may need to have some hard conversations about whether employees are willing to cut back hours or take a hiatus. Reducing headcount is never ideal, but doing it early and, if possible, just once is always a good policy.

Beyond people, now is an excellent time to look for ways to reduce fixed costs. New work-from-home protocols may mean that your office space is no longer needed. Renegotiating your lease, subleasing a portion of your space, or reducing desks in shared workspaces are all good options. Lastly, communicate with your vendors—renegotiate pricing on subscriptions, place things on hold, or ask for extended terms.

3. Explore new revenue opportunities. We have challenged our founders to think about whether the changing environment provides them with new opportunities for selling their products and services. And they’ve risen to the occasion. For instance, one of our portfolio companies quickly tweaked its software to assist one of its customers with the intake of PPP loan applications. In another example, a founder stepped up to lead an industry working group tasked with updating policies relative to the pandemic. The action raised the startup’s visibility and led to more prospective customers.

Scrutinize the ROI on your sales and marketing spend and review your profitability by customers. Both actions provide insights on where to focus your efforts (and perhaps where to scale back, if you have limited resources). Also, simplify your customer onboarding so that they can complete it virtually and with little help, and ask for prepayments from customers wanting discounts.

Launching and growing a business is a journey filled with expected and unexpected challenges. Do what you can to add financial resiliency to your startup, and you’ll be more prepared to handle uncertainty now and over the long-term.