Venmo and Slack were forged in 2008, during the largest economic downturn since the Great Depression, which affirms the fundamental reason for writing this article: Exemplary brands and products can grow even during trying times.
Startups across stages and high-burn companies are pacing through the chilly wave of a “funding winter” where uncertainty around equity-backed funding is shaking things up for founders across industries.
After a two-year-long pandemic, a war, and international inflation, this was likely. It is not the first time global public markets are plummeting and entrepreneurs are riddled with questions about how to make it past this without more cash to solve their problems. It is a blessing to live in the information age where we can act upon facts and data in real-time.
Having been in the entrepreneurial arena for over 17 years, I have been privy to the hiccups businesses might face due to restrained access to capital. For funded startups, reengaging with your existing investors is always an option. For entrepreneurs considering other approaches to ensure sustainable business health, here are four ways you can make the best out of an unfavourable market climate for your business:
Stay on the lookout for alternative funding options
Not all business agendas are worth the dilution and not all roadmaps require you to bear a hefty cost of capital. Debt-backed funding is the underlying need to maintain a healthy ratio of debt and equity in your business.
The key is always to plan for equity and debt instead of equity or debt. Some of the world’s largest VC investors, including Sequoia and Y Combinator, are now focused on investing in a realistic valuation of a startup rather than the inflated one after the previous year’s lofty influx of funds.
Startups like SMOOR Chocolates have sailed through during the pandemic by scaling their revenues by 100x through flexible debt products like revenue-based financing.
If your business is currently employing a credit line, you can evaluate other debt-based funding options available in the market as well. Debt financing providers in India are now curating funding plans for a variety of use cases which has enabled thousands of Indian entrepreneurs to scale their businesses in a founder-friendly manner.
Some debt-backed financing alternatives to supporting startups in tackling their operational hiccups would be:
- Supply Chain Financing/Invoice Discounting to help D2C merchants manage inventory & supplier costs
- Revenue Based Financing for startups (across all stages) to fund their expansion plans through monthly revenues
- Buy Now Pay Later or Working Capital Financing for young brands tackling credit cycle gaps or to finance their purchases on B2B marketplaces like Amazon or Flipkart
- Asset Financing/Leasing for fast-growing asset/cap-ex heavy startups to help them with operational assets
A company’s own profit is the best form of funding. If a company is not making profits and burning costs, then combining revenue and flexible debt should be looked at to reduce the risk of burning equity.
Financial Planning 101: Plan backward
While this may be a piece of evergreen advice for year-round business health, an economic downturn would be the best time to bring it into practice.
With little to no information about how this funding slowdown would pan out, your runway becomes your top priority. This directly means that you need to cut down on low-priority costs, closely monitor high-priority costs & adopt a more vigilant attitude towards recurring operational costs. In addition to that, this might be the perfect time to align the bandwidth of your team and resources towards priority tasks.
What’s on priority? I propose this checklist and any task that ticks off the majority of items can be deemed a “priority”:
- It helps you increase your revenue pipeline
- It is an alternative to a costly third-party solution
- It helps you and your team save time, which can be dedicated to priority tasks
- It helps you reduce your service turnaround time, hence translating into higher conversions/revenue
- It helps your brand gain credibility at a minimum cost
Leverage strategic partnerships to keep Customer Acquisition Cost (CAC) to a minimum
Netflix, before it became the global giant for online content streaming, set the market benchmark for how crucial partnerships can be for a business in the time of a market downturn.
Back in 2008, Netflix introduced its new product (the streaming service), as a response to dying video rental stores. Then, between 2008 and 2009, the company continued to work on partnerships with brands like Nintendo and Xbox so people could stream content through these devices.
It was these innovations that allowed the company to continue to grow during the economic downturn. In fact, they were increasing memberships and subscriptions during the 2008 recession while other companies were struggling to maintain revenue.
The underlying point of this fact is, instead of burning cash on attracting a million eyeballs to your brand with a low conversion percentage, it is better to build industry partnerships that can convert users/consumers with high intent. Your brand can leverage partnerships in 2 major ways:
- Your strategic partners become a Force Multiplier as they give you streamlined channels to acquire, retain & monetise consumers at a reduced CAC
- Your recurring costs can be significantly reduced if you onboard service partners for perpetual business needs like legal services, automation tools, facility management, etc.
Keep elevating your customer experience
A great example to emphasise this would be Groupon, which was just a startup during the economic downturn of 2008.
Before becoming the go-to platform for good deals, Groupon too tackled challenges much like Indian startups right now. In an economy where people were losing jobs and business owners were highly uncertain of their future (sounds familiar, doesn’t it?), the one thing every consumer was counting on was discounts.
This worked out great for Groupon when they slashed all their available coupons based on reliable consumer insight. There is nothing that can beat a good product and a good consumer experience. Engaging consumers throughout the user journey, acting on user feedback and building a robust product with a unique proposition is the bedrock of entrepreneurial success.
Growing startups are seeing high uptake, thriving across India and amassing fans who love the customer-focused approach these brands are adopting. These brands often require financing to match their growth needs that are currently unmet. Keeping your ears close to the floor and preparing for any foreseeable crisis is the best entrepreneurs can do to ride out this wave of uncertainty.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)