With fears of impending recession and a reduced demand across most sectors, what does this mean for startups? Knowing startups and the many challenges we go through a common one is to perform with extremely limited resources. Having been in startups where bootstrapping was most times the only available option, a challenge like this seems to be forcing yet another measure like this from many startups.
As always with the market slowdown, some sectors / areas might benefit from an increased focus, but the scope of challenge is far less than small. An extraordinary time where startups will now be expected to adapt to survive and wade through this tide to only come out stronger and produce innovations which can startle the world.
The discussion focuses on immediate impacts and possible opportunities/ challenges for startups with questions about the strategy to brace this enormous challenge.
Market: Reduction in demand
It is no wonder that a pandemic like this has a global impact. Given most startups are focusing on global market, the impact stretches a bit further than demand and supply. It also extends to some questions about wider impacts of the business and incorporate segments into their operations which were not initially accounted for.
What do these impact areas look like, how is the market shaping? These are questions which probably go through every one of us as we think of a strategy to respond, some patterns are:
- Heavy impact on the travel and luxury sectors – airlines offering full refunds. How many of these airlines will survive the downturn?
- Increased focus on delivery and logistics services: This might bring an added pressure, but for organisations which can adapt – a wider market to cater to given the need and necessity. It is certainly not a time to test customers with increasing prices, but to prove how great a service can turn into brand loyalty.
- Entertainment sector: Given that people are encouraged to work from home, the entertainment sector – particularly on demand television, music will be in the forefront of added demand.
- Health tech, biotech: An increased demand on these sectors considering the focus investment would be aiming at.
You don’t need PESTLE analysis to show that the market is down. But if you want to provide a macro view of your business, it sure has a slowdown written all over it given the political, environmental and perhaps soon to be legal factors as well.
Operations: Frugality in spending
Although recruitment is often the hardest part for businesses, one of the first ones to take a hit during business slowdown is temporary employments and reduction in variable costs.
- Redundancies: Some companies have already laid off employees on temporary contracts while keeping its reserves for the permanent staff. With startups, this might be a trend that can immediately follow as soon as the market pressure starts creeping in. For many startups – just surviving will be a competitive advantage .Although it sounds a bit negative, it can certainly ramp up depending on how quickly the situation improves.
- Investment in Product Development: With the reduction in market pressure, it might mean an opportunity to focus on the internal roadmap or taking up wider implications projects which can provide wider markets for the company. It might also mean a time to look internally for process efficiencies which can reduce waste and create value / being ready for the market when it sees an upward trajectory.
Fundraising: What about startups which are now going for fundraising?
With the fear of recession looming in the background, the investment space is expected to slow down. Reduced demand and increased pressure only means that people will be holding on to their cash reserves until the market picks back up again.
What does this mean for the startups if you are focusing on fundraising?
- The natural area of progression is to look towards govt grants which for socially wider impact projects or areas of biotech, pharmacy, drug discovery, etc.
- An added opportunity could be through interest free govt loans or part funded ventures. However, given the slowdown in environment, there is bound to be an added competition in this segment.
Bracing the tide:
The economic or business landscape is amidst fears of slowdown and companies are thinking about cost reductions to stay afloat. Will this mean that we are fearing another recession like 2008, only time will tell – but complete and blanket reduction in spending across all sectors surely is a quick way to get there.
Survival is almost a very natural response for a startup, so we can be sure that resilience will kick in for most startups to brace the tide and come back stronger and with more innovative solutions. It certainly is a very grim challenge with grave concerns, but also startups tend to thrive when pushed to perform. This might be one another push, the environment is asking for a lot more from the startups than initially planned for. But there are certainly some measures that can be looked at to brace this tide and come out strong.
