How Can Startups Survive A Recession [Actionable Tips + Expert Advice]

Industry Trends, Symmetrical Hacks

05 July, 2022

How Can Startups Survive A Recession [Actionable Tips + Expert Advice]

Karolina Kulach

Karolina Kulach

Senior Content Marketing Expert

Economic slowdown is here. Startups are especially vulnerable with capital becoming scarce. Many companies have initiated layoffs and cost-cutting measures.

Navigating the impact of Covid-19 and other world events is not easy. Focusing on sustainable growth and reducing costs is necessary, which puts many startup executives, CEO’s, CFO’s and HR Directors in a difficult position.

But there’s good news. With an effective action plan, you can weather the storm. You can even turn a crisis into opportunity and build startup unicorns.

This article will give you actionable tips and expert advice to help your startup survive and thrive.

Learn about:

  • How global macro-economic factors hit companies and what it means for startups
  • How to prepare for a recession, minimise your costs and maximise your profits by automating your processes
  • How to deal with both potential layoffs and new hires and nurture your stay team
  • How to stay agile and respond to changes

Ready to improve employee engagement and increase your company’s profitability in difficult times? Download our HR Calendar & Planner 2023!

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Click the links below to go directly to the tip of your interest:

#1. Business survival tip: make sure you have enough money
#2. Business survival tip: reduce startup costs
#3. Business survival tip: make the most of the current gig economy
#4. Business survival tip: get ready for changes and stay agile
#5. Business survival tip: take good care of your employees

What does a recession mean for startups?

No company is immune to the effects of the current recession. Tech startups have laid off over 20,000 employees since April. With funding drying up, the situation is expected to get worse.

The economic downturn in the post-pandemic reality has been made worse by geopolitical unease, e.g. due to the Russia-Ukraine war. As a result, businesses are suffering from:

  • Rising inflation
  • High interest rates
  • Rising oil and gas prices
  • Layoffs and cost reduction pressures.

The crisis makes it harder for startups to access capital. Banks and investors have become much more selective in new investments. Financing rounds are less frequent. Early-stage startups can now expect lower valuations, lower round sizes and fewer deals. Additionally, potential customers may not be ready to invest in new products due to the downturn.

But what will happen exactly and when will it end? There’s no crystal ball predicting the future or the dynamics of the recession.

However:

All companies can, and should, prepare for a recession.

While it’s important to stay optimistic in tough times, optimism is not enough. In other words, hope for the best, but plan for the worst.

Recessions are challenging, but there’s good news for startups

It may sound counterintuitive, but a recession may be the best time to position your company for growth and long-term success.

Granted that times are tough. Early-stage startups can expect less funding opportunities and smaller rounds. But even in a downturn, businesses have pain points that other companies can help them with. Thus, many investors are still willing to take risks if they believe in the product.

Furthermore, a bad economy helps eliminate companies that provide poor or redundant services. Many of your competitors will be unable to react. So if you have a startup built on a good idea and a solid foundation, keep going. For later-stage or well-funded startups, it can even be a golden opportunity to buy out struggling competitors.

There’s more.

Real entrepreneurs build companies regardless of the markets, personal challenges or external circumstances. Many great companies were started in downward economies and built in the worst of times.

Here are some examples of huge unicorns from the 2008 recession:

  • Airbnb (private; $38B, 2019)
  • Pinterest (public; $14B, Oct 2019)
  • Cloudera (public; $2.5B, Oct 2019)
  • Uber (public; $54.6B, Oct 2019)
  • Square (public; $26.9B, Oct 2019)
  • Slack (public; $12.5B, Oct 2019).

The bottom line: there’s never a perfect time to create or run a perfect company. Your task is to do things differently and turn a crisis into opportunity. That’s how real entrepreneurs build iconic companies.

And remember: crises always end.

Now let’s focus on practical advice and give you some actionable tips.

#1. Business survival tip: make sure you have enough money

First things first. Make sure you won’t run out of cash.

First, ask yourself some crucial questions:

  • What do you want to achieve (profit, margins, growth etc.) and when (monthly / quarterly / yearly etc.) ?
  • How will you achieve your goals (e.g. by cutting cost, optimising your pricing, launching new products, hiring new talent, increasing marketing spend, etc.)?
  • How will you finance it, especially if you’re not able to raise money soon?

Then make a good plan and start executing it.

Plan your budget

A well-planned budget can serve as your organisation’s financial and commercial roadmap. It will help you:

  • Ensure sufficient liquidity to fund your current and future plans
  • Identify unnecessary cost drivers
  • Ensure financial discipline
  • Mitigate risk
  • Make your business goals clearer and more transparent
  • Evaluate new opportunities
  • Ensure strategic alignment for all decision-makers and stakeholders.

Consider alternative funding

If you’re not profitable (yet) and can’t raise a new round of financing, consider alternatives to a VC funding mode, such as:

  • Revenue-based financing
  • Loans
  • Factoring contracts
  • Venture debt
  • Convertible notes.

For example, revenue-based financing will allow you to raise capital from a financier who claims a percentage of your future revenue.

Still, be careful about taking on excessive amounts of new debt.

Raising capital during a downturn can be very difficult. However, if you can demonstrate consistent cash flows with strong margins, investors may want to listen to your business pitch. Especially the ones who are familiar with your business, but perhaps were unable to get into the prior round.

Be smart about pricing

If you see more demand, you may be tempted to increase prices. But be careful. Overcharging your customers can be a costly mistake, especially if they notice you’re trying to exploit them.

In other words:

Short-term gain, long-term pain. It can be hard to turn ripped off people into loyal customers.

The alternative? Focus on gaining as much market share as you can and create more premium lines of services.

If you see less demand, you may be tempted to lower prices. Be careful, too. This won’t necessarily mean that you’ll get the demand back. Moreover, your customers may start to think your service is worth less than your competitors’.

The alternative? You can, for instance, bundle products or give some products away. You can offer free shipping or be more flexible with payment terms. You can also create a low-entry offer at a reduced value.

#2. Business survival tip: reduce startup costs

When startups begin to see revenue slip or funding dry up, cost-cutting is inevitable. There comes the time for entrepreneurs to make some tough choices.

Start by cutting all unnecessary business expenses. For example, are there any nonessential projects, underperforming departments or redundant responsibilities? How about software and infrastructure costs? Do you pay for licences or things that nobody uses?

Furthermore, in the age of remote working, does your startup really need an office space? To cut overhead costs, consider an entirely remote workforce or joining a coworking space.

Build an efficient remote work culture and processes

The future of work is flexible and remote. It’s great news on many levels (you can reduce office space costs), but it’s also challenging.

Building an efficient and thriving remote culture is essential. Learn the best ways to manage dispersed teams. Use software that will help with your day-to-day operations. For example, consider tools like monday.com or Asana for managing remote projects.

Remote work also means global hiring opportunities. You can attract the top talent, but also expect more complex and volatile hiring and payroll operations. Still, flexibility and efficiency are essential, but most payroll solutions are not ready for this change.

Therefore, consider the Symmetrical solution that allows you to hire at scale and pay people on time by automating your payroll. Symmetrical offers you easy management of employees, contractors, documents, payroll events and payments as well as better onboarding conversion rates thanks to the candidate-friendly hiring experience. As a result, you can expect much lower startup costs.

Know when to fire and when to hire

Let’s face it: you’re likely to conduct lay-offs. You may be forced to keep the most essential employees only. If you can afford it, try to keep skilled and valued team members that may be less vital at present but will be needed soon. For now, you can shift them to other roles and tasks.

If layoffs are necessary, be human and kind. Plan it effectively and talk to relevant advisors and decision makers. Trim unnecessary positions where you can, but think twice before making significant cuts. Your stay team must be capable of turning things around.

Further, it’s better to handle it with one deep cut as fast as possible. Multiple rounds of layoffs can have a paralysing impact on your employees. Make sure you tell your stay team it’s the only round of cuts and although a very painful one, it puts the company in a more stable and solid position to survive.

But what if you need to recruit new team members but can’t afford it? Consider outsourcing work to freelancers. They’re less expensive to hire than full-time employees with benefits packages.

If you can afford to hire full-time employees, an economic downturn may be the best time to hire “A players”. Many experts can be cheaper and more available due to layoffs and the general uncertainty.

Still, make sure you don’t lose your best employees when the good times are back. For example, consider offering to move their salary higher when the downturn ends or offer them some benefits.

Additionally, consider acquihiring small companies. It’s about acquiring a company primarily to recruit its employees (as opposed to gaining control of its products/services).

The possibility to hire a pre-existing high-quality team can be a pretty good deal that will accelerate your growth. This is what companies like Google, Facebook or Airbnb did when they were smaller in 2008-2009.

Automate your startup

Economic shocks force companies to minimise costs, maximise efficiency and accelerate automation.

Thus, consider replacing people-driven processes with technology. This is not to say you should fire your employees, but hire them in other roles to make the most of your human resources.

Use technology to do more with less. Invest in intelligent applications. Think about areas where you can automate processes. Can you:

  • Automate basic customer service responses?
  • Streamline sales functions?
  • Reduce operational costs?
  • Reduce manual work in all/certain departments?

If you don’t have efficient customer acquisition, focus on improving the efficiency of your growth. If you don’t want to get lost in spreadsheets and documents, automate your payroll process.

Symmetrical makes the most of technology to help your employees work smart and avoid tasks that can be done by tools. Still, our approach is people-first. We know that people are the biggest asset at EVERY company. Technology can do the work of 100 employees, but people and their creative ideas are irreplaceable. We get that.

Now more about automating your payroll.

Automate your payroll

Payroll should be simple. If your current solution is slowing you down and stopping you from the growth you’re aiming for, it’s time to optimise it. There’s a better and cheaper alternative to what you’re using right now. You can easily replace your costly payroll team and software with a flexible low-cost base delivered by an automated payroll provider.

Symmetrical’s automated payroll solution helps you reduce costs by:

  • Automating your payroll processes, decreasing payroll expenses and improving your company’s financial efficiency
  • Reducing payroll mistakes and inquiries from employees
  • Making your payroll processes run smoothly in the background of your daily operations
  • Facilitating access to data (keeping all your payroll, onboarding and employee information in one place)
  • Providing fast, automated reporting
  • Increasing employee satisfaction by providing fully transparent payslips.

Symmetrical is not another cost for your company. Automated mistake-free payroll is a money-saver. It helps you reduce your existing cost: the high cost of running payroll.

#3. Business survival tip: make the most of the current gig economy

A gig economy allows companies to hire independent workers for short-term commitments, e.g. part-time hires, independent contractors, freelancers, project-based workers or other temporary workers. If you can’t afford or don’t need full-time employees, consider finding gig workers.

Gig economy jobs are common in:

  • Accounting and finance, e.g. independent consultants
  • Administration, e.g. admin assistants
  • Content production, e.g. copywriters
  • Design, e.g. graphic designers
  • IT, e.g. security engineers
  • Media, e.g. photographers
  • Project management, e.g. project managers
  • Software development, e.g. DevOps engineers
  • Transportation, e.g. ride-hailing drivers.

Symmetrical’s solution helps gig economy platforms radically simplify the way they hire and pay people. It addresses the needs of high-volume employers, flexible workforce and frontline workers (dynamic payroll process and onboarding, real-time salary payouts). It helps you build a better worker experience and can work across geographies.

Gig economy: number of freelancers

#4. Business survival tip: get ready for changes and stay agile

Downturns often force a more short-term focus and/or changes in direction. This doesn’t mean you should lose focus, but stay agile and balance your long-term vision with short-term goals.

When changing direction, it’s important to see opportunities and predict demand. Ask yourself the following questions:

  • What low-cost solutions do companies need at this moment? What might they need in a moment?
  • How can you help companies reduce costs or increase revenue? How can you help them to turn cost into profit? How can you address their fears and anxieties?
  • Can you enable businesses to do things in a way that they haven’t done before?

It’s also essential to prepare for multiple scenarios. You may need to:

  • Rapidly adapt your plans to changing market conditions
  • Pivot your business in a more profitable direction
  • End up doing something completely different.

Did you know that Twitter started as a podcast discovery platform? Yes, good startups know how to stay agile and thrive in a crisis.

#5. Business survival tip: take good care of your employees

Changes in direction can impact your employees. For instance, they may need to postpone creative ideas and experimentation when, all of a sudden, cutting costs becomes a priority.

At the time of pessimistic updates, effective communication is a must. If you’re a remote-first company, get people together if/when you can. Explain what’s going on and why you’re doing what you’re doing.

Give your employees the feeling that you do your best to have things under control. If it’s appropriate, communicate your vulnerabilities and discuss how everyone can help handle them.

Finally remember that:

Events like Covid, Brexit or the war in Ukraine have been stressful for millions of people. Show them empathy and acknowledge their concerns. Get to know them better and ask about their personal situations. Don’t forget random acts of kindness, e.g. handwritten thank-you notes for your team members.

Other business survival tips for startups

  1. Turn fixed costs into variable costs for more flexibility, e.g. staffing various projects and roles can be your variable cost (if you don’t need full-time employees, but 3rd party services, independent contractors or freelancers).
  2. Identify the highest-ROI marketing opportunities and focus on the most effective marketing channels.
  3. Focus on your top customer segments.
  4. Expect and anticipate changes in customer behaviour.
  5. To improve your cash flow, try to get new customers to pay for your product up front, e.g. consider annual subscriptions instead of monthly ones.
  6. Check the user analytics data and talk to your customers to learn how to make the best product.
  7. Consider targeting lots of small customers rather than a few big ones. If you get things right, the big ones will come around when the economy starts to recover.
  8. Nurture relationships with your suppliers and consider diversifying your supply base.
  9. Celebrate small wins, especially in tough times. Stay realistic yet optimistic.

Watch the video from Y Combinator: “Save Your Startup during an Economic Downturn.”

Conclusion: which startups will survive (and how to be one of them)?

Startups building solutions that increase revenue or lower costs, which is essential in an uncertain economy. Startups that help organisations work smarter. Startups that have solutions that cause shifts in an industry.

Who will survive exactly? We can’t predict what will happen with certainty. Yet there’s action YOU can take to keep calm, carry on, survive AND thrive.

To survive a recession, remember to:

  • Make sure you have enough money and plan your budget wisely
  • Reduce startup costs and automate your processes where you can
  • Make the most of the gig economy
  • Stay agile and ready for changes
  • Take good care of your employees.

It’s easy to start or run a company in good times, but only true entrepreneurs can endure bad or crisis times and keep building their dreams. Be one of them!

And remember: crises always end.

Win against the economic downturn with Symmetrical

Symmetrical is the first global provider of headless payroll technology that enables an unparalleled level of automation of payroll processes through a flexible, API-first approach. Run your payroll hassle-free, on auto-pilot and cut your payroll costs right now!

Sources

Y Combinator to portfolio founders: ‘Plan for the worst.’
39 Moves to Survive (& Thrive) in a Downturn
Five Tips For Managing Your Startup During An Economic Downturn
Y Combinator Warns Startup Founders Of Economic Downturn
How budgeting can help startups survive the economic downturn
Why The Best Startups Are Created In An Economic Downturn
​Why a downturn can separate the recession-proof startups​ from the ‘hacks

A Surefire Path To Startup Survival In A Recession
Gig Economy
What Happens To Startups in a Recession?

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