3 Ways Startups Could Thrive During A Recession
After the dot-com bubble burst in the late 1990s and the Great Recession of 2008, the 2022 economic crisis has to be the major tech downturn of the internet era. While the global economy was just about recovering from the pandemic, the Russia-Ukraine war proved to be an unprecedented setback, especially for developing economies. And now with a major global recession just around the corner, it’s only a matter of time before we begin to feel the effects of a market correction that last occurred about 14 years ago.
‘Now’ is also an interesting time because very few Indian startups have existed through the entire economic cycle, so how exactly could startups prepare? As each enterprise is unique, the downturn would affect every business differently.
The first thing to do would be to assess how much runway your company has. See how long you’d be able to stay afloat – is it a year or less, between one and two years, or do you have enough to keep running for two years or more?
Irrespective of what your answer is, make sure you prioritise your expenditure, find new avenues to maintain incoming cash flows, and trim wherever possible. Thankfully, unlike legacy enterprises, startups have adaptability and agility coded in their very DNA. In fact, some early-stage companies might also benefit from recession and face limited blows from volatile markets. Here’s why:
A bad economy means rising levels of unemployment – during the Great Recession, 8.6 Americans had reportedly lost their jobs. If we were to look at the bright side, this makes available a high-quality talent pool for hire if head hunters are willing to look. And because startups typically have lean teams, the hires need to add as much value as possible to justify the hire.
An economic meltdown is the true test of business viability. A recession means survival of the fittest in the truest sense. This means, you could expect to have some of your competition eliminated just by the process of ‘economic selection’.
Also, the bull market that is now transitioning into a full-blown recession was rich with VC money. This made startups with poor business plans and high cash burn run past their otherwise short runway. However the current economic slowdown is going to make raising capital and uphill task with longer intervals between funding rounds – forcing companies to go on operating for a longer duration of time with fewer resources.
Scaling up can be expensive — especially for early-stage companies that need heavy capital to grow. Now during a recession, several overhead costs tend to reduce making running a business a cost-effective affair in some cases.
A recession, apart form being the test of resilience is also the time when strong business are birthed. For example, Slack, Airbnb, Uber, and Instagram were some of the companies that we founded during the recession.
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