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How start-ups can weather the Covid-19 storm

As most countries in the coming weeks brace their healthcare systems for the pandemic peak, many in the private sector also question whether they too can withstand the novel threat. Will each government’s promised support be enough to keep small companies above water in the imminent downturn?

Mid-March saw the largest one-day declines in both the FTSE and Dow Jones index since 1987 and although some market recovery was seen after the US Senate guaranteed $2 trillion in business aid, investor unease remains palpable.

Beyond the fluctuations in demand for goods and services as a direct result of state-enforced quarantines, supply-side disruptions, that may have a longer-term impact on businesses, are being felt almost universally. The complete lockdown in China has created unprecedented disruption in global supply chains. Start-ups and SMEs will be particularly vulnerable to these factors and others including decreases in staff productivity, facility closures and curtailment of meetings.

How can stakeholders mitigate against disruption?

Preparation is key, even in absolute uncertainty.

Sequoia, the tech venture capital firm, recommends that CEOs and founders critically evaluate every assumption that their business is based on. These include:

  1. Cash runway: How much financial leeway do you really have? How long can you keep it going for if things don’t pick up sharpish?
  2. Fundraising: The years succeeding previous downturns seen modest private financing across the board. However, it’s to be noted that some of the most successful companies were forged during the most trying of times.
  3. Sales forecast: Don’t depend on your customers returning to status-quo spending
  4. Marketing: How does reduced sales performance impact your ROI for marketing spend?
  5. Headcount: Can you afford to defer furloughs and lay-offs?
  6. Capital spending: Examine every possibility and contingency plan, it may even be the right time to accelerate investment

Supply-side considerations:

CEOs should broadly consider three categories in their contingency planning: operational, organisational, and financial manoeuvres.

Operationally, ensuring efficiency and maximising output in their virtual workplace will be key in the immediacy whilst lockdown measures are most stringent. Clear methods of communication and reliable infrastructure for virtual meetings and work-sharing should already be established. Employers should be more understanding than ever of the personal affairs of their staff, ranging from childcare duties to increased mental health needs. To allow for these exceptions they should embrace asynchronous, unconventional working hours by laying out clear deadlines for deliverables.

Organisationally, management should consider cross-training staff to pre-empt staffing shortages that may arise from exogenous factors. Additionally, CEOs should identify dependencies and potential weaknesses in their supply chain to put in place countermeasures where possible. These may be through delegation to new external suppliers or internal reorganisation.

Financially, CEOs ought, where possible, to prioritise revenue over growth, in their business model. To achieve greater liquidity, emphasis should be placed on smaller-scale contracts and reducing expenses. Eli Cahan writes: “CEOs can consider raising anticipatory funding, even if in the ideal world they might defer a raise in pursuit of higher valuations”.

Finally, funders and CEOs can leverage their social and professional networks to share their experiences and expertise in this unprecedented ecosystem, to cultivate a support network with other start-ups.

Ultimately, if companies are able to rapidly adapt, through astute self-awareness, thorough contingency planning, and a healthy dose of good luck they might just emerge from this crisis as the next unicorns.

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