How can Startups and Small businesses prepare for a recession?

 

Startups face unique challenges during economic downturns. They typically aren’t yet profitable and so are reliant on outside funding—and therefore are especially exposed when macroeconomic conditions change.

While every downturn is different, in my experience there are some essential steps that startups should take when the economic environment deteriorates.

Take steps to extend your runway. Now.

You need to extend your runway or your “cash out date,” so plan to survive on the capital you have. Only spend money to improve your product or service or drive new sales. In recessions “cash is king,” so you need to make sure you have enough to get through to the eventual expansion.

Proactively embrace your best customers.

A recession is a perfect opportunity for you as CEO to strengthen your relationships with your biggest and most important customers. If you’ve historically thought your time was best spent on product, it’s time to reconsider: In a downturn, your best use of time is talking to customers and making sales. Remember that it is easier and cheaper to sell more to existing customers than to land new customers.

Stay close to your venture investors.

Those same investors must now decide which of their portfolio companies to prioritize  and support as the economy slows. Investors will need to reserve capital for subsequent fund-raising rounds for portfolio companies to see them through to success.

Embrace your best employees.

Recessions force employees to re-think their career choices. Get ahead of this. Spend time with your best employees making sure you understand their mindset. Losing top talent will have a very negative impact on your company. Managing and maintaining your momentum is critical both in terms of retaining your top talent as well as recruiting new talent.

Emphasize and rally around your unique culture.

Focus on culture and communicate your company’s uniqueness and value proposition. It may seem counterintuitive to both reduce expenses and focus on culture. It’s possible because funding unique cultural events is not expensive. Every company’s culture is different, but now is the time to double down on it. A good culture will help retain talent and ensure that you’re able to make it through tough times.

Recessions are a natural part of the business cycles and companies of all sizes must weather them or wither. To make it through and emerge even stronger, conserve cash, and pay close attention to your customers, investors, employees, and culture.