Due to the coronavirus pandemic, there has been a drop in startups which has reduced employment opportunities across a variety of industries. Many businesses have been forced into budget cuts and employee furloughs because of the harsh economic times. After a virtual portfolio meeting with several company CEOs to discuss COVID-19 challenges, Andrew Chung, founder of 1955 Capital, provided the following takeaways for how startups can adapt to this new reality.
Businesses will be forced to make tough decisions regarding budgeting during this time. The success of any startup relies on how well leaders steer their businesses toward success. CEOs must think creatively when making budgeting decisions, including more upfront cash payments, cost-sharing, and other financial support.
According to Andrew Chung, runway planning entails engaging strategic partners who have been severely hit by the crisis. Some businesses have experienced significant downward pressure on market caps and are dealing with furloughs and budget cuts. The number of people filing for unemployment has been on the rise after the lockdowns as businesses continue to feel the effects of coronavirus. As a result, it is difficult to predict how long it will take before things come back to normal.
Runway extension entails planning when to raise the next round and meeting milestones in advance. For example, businesses can plan monthly cash burn over time, which may require fundraising. Startups may need to decouple their burn rate from unpredictable timing of a return to regular activity when strategic partners return their phone calls.
Level the Playing Field
Startups have an opportunity to catch up with established companies during this period if they implement appropriate strategies. The pandemic has leveled the playing field by allowing each business to work out recovery. They need to rethink their target markets and reprioritize their development efforts in gaining a market share. For example, startups that produce products for multiple market applications can start by targeting those sectors that are resilient to the coronavirus pandemic. This means businesses can renew their product matrix and shift focus from the most affected sectors to the least affected.
Breaking geographical barriers is also an essential part of adaptation. According to Andrew Chung, businesses should be looking at the global picture and learn from those who have already adapted to the conditions. Countries like China and Taiwan can provide a ready market because they have already reopened their economies.
Startups can also adapt to the health crisis by rethinking their distribution strategies. Travel restrictions and social distancing rules have forced many industries including retail, hospitality, travel, and restaurants to slow down their businesses. The lockdown restrictions have forced changes to distribution strategies, such as adopting online marketing and direct-to-consumer opportunities.
Rethink Approaches to Fundraising
Fundraising can be challenging for startups during this time because most investors would prefer working with existing companies as opposed to startups. This is due to the uncertainties of whether the business will thrive. Startups need to prioritize capital pockets that are active during the crisis. For example, they may have to rely on funding from people they know and can trust. CEOs must convince investors that they can perform due diligence and assure return on investment.
There are other potential sources of funding that you can find during this period through more creative means. For example, some funding sources for startups can come from government grants and R&D programs if you have a tech business. All businesses need to create a portfolio that will be favorable to investors, says Chung.
Secondly, businesses can look toward family offices for possible funding. These are less bound to the institutional framework for funding, especially when dealing with a well-capitalized business. A startup can seek investors from family and friends who have faith in their ability to create profits.
Adopt a Global Perspective
During this time of uncertainty, there are more opportunities for startups that introduce radical innovations, which can be useful on a worldwide scale. As governments seek to restore growth and repair their economies, businesses should be thinking toward a global perspective, such as sourcing from the Asian market.
Startups can adopt this global perspective by understanding how customers are acting in other countries. Regions such as Asia already dealt with a similar health crisis during the SARS outbreak, and thus have prior experience on how to recover. Startups can monitor how their business counterparts in Asia are doing during this current pandemic.
Importance of Team Morale in Remote Work Environments
Startups need to adopt a proactive approach that improves team morale to survive. According to 1955 Capital, it is more crucial than ever for startups to focus on team building. This means CEOs should cultivate a team culture between suppliers, partners, and employees alike. Every stakeholder should be brought on board and know a business’ priorities and be involved in planning initiatives.
Such approaches include regular check-ins to individual workers and the creation of virtual opportunities that can replicate the physical interactions within the workplace. This allows teams to stick together during this crisis and keeps employees motivated. Some startups have remote workers whose morale and productivity will be improved by a team-oriented focus.
Startups play a vital role in the economy, but the coronavirus crisis reduces their creation and challenges their survival. Andrew Chung provides a perspective into surviving in the unique environment of COVID-19. Businesses should focus on driving revenue and growth, even during slowed economic growth. They should be forward-thinking and focused on the best way to enhance their competitiveness in a post-COVID business world.