Preparing Startups for Economic Recession: 10 Steps

Amazon announced layoff of 18,000 employees in Jan 23, which is in addition to the 10,000 announced in Nov 22, Alphabet announced 12,000, Microsoft 13,000 and Meta 11,000. What is important to recognise is that these are companies who have enough data available with them to predict the direction the world economy is going to take, much better than some governments and banks of the world. These are large layoffs and many of these companies are laying off for the very first in their lifespan. Banks have failed both in the USA as well as in Europe and few are already on the brink. Which means that these companies are predicting a very bleak future at least for the short 12 to 18 month period if not longer. 

Economic recessions can be difficult times for businesses of all sizes, but they can be particularly challenging for early stage startups. Startups have limited resource, smaller customer base, some in product development stage, some in early GTM stage and many who are awaiting results of a leveraged marketing campaign, which can make it difficult to weather an economic downturn. However, with the right strategies in place, early stage founders can take steps to prepare for a recession and minimize its impact on their business.

Here are some specific action items that 11.1 KM-S had recommended to all its portfolio startups to protect against an economic slowdown:

1. Review and optimize your business model: Make sure that your revenue streams are diversified and that you have a clear understanding of your cost structure. Identify areas where costs can be cut and revenue can be increased. Track every possible metric, and take corrective measure of any deviation, try and improve on every one of them within shorter intervals.
2. Monitor cash flow: Keep a close eye on your cash flow, as this will be critical during a recession. Make sure you have enough cash on hand to cover expenses for at least a few months. Delay all strategies that are experimental and are not sure to give Economic revenues in the short term. 
3. Prioritize cost management: Be strategic about where you allocate resources. Cut back on non-essential expenses, such as travel and entertainment. If a cost can be avoided which would not yield any result in the shorter term it is best to avoid them.
4. Focus on customer retention: Retaining existing customers is more cost-effective than acquiring new ones. Make sure you are providing great service and that your customers are happy.
5. Be strategic with product development: Be mindful of the market conditions and your company’s overall strategy. Consider slowing down development of new products or features if they are not critical to your business.
6. Review and optimize your marketing strategy: Be strategic about where you allocate your marketing budget. Focus on activities that generate the highest return on investment.
7. 7. Raise funds early: If possible, raise funds now at a low valuation, as this will provide a cushion for your business during the economic downturn. Money in hand is better than the lesser valuation
8. Be prepared to pivot: Be prepared to pivot your business model or product if necessary. Be open to new opportunities if they add to revenues and even if they may not be strategic to the company’s vision
9. 9. Communicate with your employees: Keep your employees informed about the company’s financial situation and any potential changes. Be transparent and involve them in decision making as much as possible
10. Keep an eye on the market trend: Stay informed about the latest market trends, as this will help you make better business decisions.

By taking these actionable steps, you can protect yourself against an economic slowdown, increase chances of survival, and be better positioned to emerge stronger once the economic recession is over.

As a passing note if your gut is not comfortable with a spend, a strategy, a pivot, then give attention to it, dig deeper, do more market study before taking any action as these are not good times to take untested experiments.