Riding Out the Storm: What COVID-19 Means for Startups

By Mark Buffington

While it can easily be said that growing and scaling a business is difficult even under normal circumstances, COVID-19 and the corresponding economic shutdown have added another significant challenge.

As a venture capital investment firm, we’re often asked what advice we give to startups struggling to come through this period intact.

Here are five of our “rules of the road” to help startups navigate the current economic crisis:

1. Don’t run out of money. This often requires a serious shift in many founders’ mindsets, especially those who have been running in fifth gear and burning a lot of money to capture market opportunity. Cash was flowing until just a few weeks ago, and it will again. But now is the time to extend your cash runway and make hard decisions to cut costs.

2. Act quickly. There’s an adage that says “he who hesitates is lost.” This is especially true now in terms of business agility. Startups need to be able to pivot quickly to reduce costs and change market strategy to align with the current economic reality.

3. Acknowledge emotion. Emotions are heightened for everyone. Founders have put their blood, sweat, and tears into building a business that may now be at stake, and employees are concerned about their jobs. This is why it’s especially important to rely on factual data for decision support whenever possible.

4. Be creative. In times like these, don’t be afraid to ask for discounts or to call in favors. For example, it’s possible your landlord will negotiate a lower monthly rate if it means you’re still paying. If customers ask for price reductions, grant them in exchange for contract extensions. Barter products or services if you can—whatever saves cash and keeps you in business.

5. Lean into the challenge. Some of the best companies developed their market differentiation during a crisis because they had to think of new ways to do things. While startups must focus on short-term survival, they should also use this time to look at long-term, strategic improvement. Also, remember that your competition is going through the same challenges. If your company is better at working through them, it will emerge as the leader.

It’s likely the global GDP will decline in 2020, one of the only times in modern history this has happened. The U.S. GDP will most likely decline for two quarters as well, which will mean we’ve entered an official recession. However, we at BIP Capital do not believe this recession will last as long as past economic slowdowns, such as the one that began in late 2007 with the housing and banking crisis.

Many, in fact, predict a “V-shaped” recession, meaning there will be a short-term but substantial shock to economic activity before business and commerce begin to normalize.

Strong companies have been built from chaos. Being proactive in finding ways to ride out the storm, instead of being reactionary, is the best path forward for not only survival, but long-term success.

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