After many webinars, readings and conversations with start-ups and VC’s, I thought it was time to put a crisp summary of relevant actions, start-up founders can take to ensure survival. There is no one size fit all solution. The context is early stage start-ups who may not be adequately funded or have enough of runway past 6 to 12 months. There is no right or wrong answer – The most important driver for any decision right now is survival.
1. This is a new normal. Expect revenues to be significantly impacted and minimum of 6/12 months to return to pre-Covid levels. In fact, you can assume that there was no FY 20-21 for growth.
2. Plan for 18 months of runway. Analyze each expense line item and see if you can remove, reduce, defer or convert to variable costs.
- Renegotiate or defer rentals with landlord.
- Renegotiate both cost and payment terms with vendors.
- Leverage/move to cloud/hosting/SaaS options which may be free or cheaper.
- Stop or reduce marketing spend.
- Reduce salaries, stop hiring, fire non-performers.
- Do percentage reduction in salaries in a tiered model. Higher salary employees should get a higher percentage reduction. Explore temporary furloughs.
- Convert portion of salaries to equity. Remember that employees who buy into this idea are there to stay.
- For employees who get a combination of salaries and incentives, decrease the percentage towards salaries and increase towards revenue based incentives.
4. Revenue – Do whatever you can to get cash in the bank:
- Give discounts for advance payments.
- For SaaS companies, provide options like 4 years subscription for 3 years payment to improve cash in hand.
- Customer retention is important – reduce churn by extending renewals by a couple of freemium months if required.
5. Messaging: Clearly communicate your philosophy in a candid town hall with all your employees. Remember that the ones who stick with you when the going is tough are the ones to retain. Discuss with your leadership teams to ensure buy-in.
6. Upskill: Provide options for employees to gain new skillsets as you have more time and lot of courses from top universities are free. Give additional roles and responsibilities and this could also help in reducing headcount.
7. Goals: After the entire effort of adjustments refocus on your key goals. Relentlessly focus on path to profitability.
8. Valuations: Forget about your valuation expectations which were in the past. Most funds have put major investments on hold and are reducing valuations on start-ups they were planning to close a round with.
9. Fundraising will take lot longer with lesser valuations and only resilient, sustainable companies with path to profitability will get funded.
10. Balance: Most importantly as founders, times will be difficult and will be there for a while. This is a time where you can learn and network and showcase your resilience. Focus on improving your physical and mental fitness levels.
Hope this was helpful. Reach out to me at firstname.lastname@example.org, if you have any questions or would like to have a discussion to help you during these times.
“Anshu (Sudhanshu Srivastav) is a Mentor, Advisor, LP and Founder with a history of accelerating revenue acquisition for start-ups and planning growth strategies. He is very active with the start-up eco system including VC’s, incubators, accelerators and early stage ventures. “