How can entrepreneurs prepare to get through the next recession?

Multiple startups are raising more capital than ever before, catapulting many into unicorn status and even opting into the IPO route– case in point WeWork which fell short on multiple accounts, and yet was touted as the second most valuable start-up until recently.

The startup’s IPO story has deep lessons for startups - on things to avoid in their journey - and might encourage some behavioural shift, especially considering the crises brewing within the Indian economy. The GDP growth rate of the economy slipped to 5 per cent in the first quarter of FY 20, the lowest in over six years. The recent collapse of the automobile sector, average consumer demand, rising number of NPAs are an indication of tougher times ahead. Entrepreneurs will need to be prepared to deal with the economic recession.

The next downturn is expected not to be of the severity of 2008 Global recession or the dot com bubble burst. However, startups will need to gear up as it could cause disruption to market adoption of new innovative technologies and large rounds of funding. Here are a few strategies to ensure you are prepared and thrive during the rough patch:

1. Be frugal, manage debts, save, and manage cash: The primary objective of the founders should be flexibility during sluggish times. Less debt will give you manoeuvrability. As a founder, you need to know how your business will survive if revenue slows down cash flow. Build a yearlong emergency fund which will enable you to keep moving ahead in case the company is not generating enough revenue.

2. Work core competencies and create value for existing customers: This phase will provide real-time data on purchasing decisions and entrepreneurs can adjust their product offerings. Check and recheck your product/market fit in light of the new economic reality. This could be a great opportunity for your business to provide a better customer. Being agile will be the key as sales cycles will be longer and expectations would be higher. Focus on the low hanging fruits.

3. Develop a Plan B: This is something founders need to constantly think about. Don’t fall in love with your product, you are there to build a scalable business and therefore pre-empting the markets will be important. In regular times, bridge funding with downsizing might come handy but during a recession, most investors prefer to double down on winners. The founders should have the ability to experiment, allowing the company to pivot away from tactical to strategic thinking immediately.

4. Cultivate a Growth Mindset: A recession brings along pessimism and one tends to hold back. This could be a great opportunity to get creative and expand your market- with cost-saving offerings, breaking up collections into smaller payments or extending the payment period. Also the potential to pick up some solid talent - it will be easier to hire skilled workers – data scientists, coders, senior management etc.

Recession can be short-lived if corrective actions are taken immediately. Entrepreneurs have a greater chance of survival and can take advantage of the opportunities that it brings.

- Shashank Randev

Published on: November 2, 2019