23 Steps to Surviving COVID-19 for Startups and Small Business
Successfully building a company is a Herculean feat at the best of times — 95% of startups fail and most small businesses close their doors before they turn five.
With that in mind, it might seem near impossible to do so when there’s a global pandemic shutting down the world’s economy.
Nobody knows for sure when we will emerge out of this black hole and markets will resume normal programming — estimates ranging from several months to several years.
What we do know is that unlike the global financial crisis of 2008 which pointed to internal problems in our financial markets, COVID-19 represents an external event, and so it stands to reason that we should expect a rapid recovery once the crisis subsides — or at least we hope so.
Based on this, if your company has less than 24 months runway left, it’s time to calmly delineate between what you can control and what you can’t, and focus on the former.
As such, I’ve taken the time to prepare the following 23 steps — many of which are applicable to both startups and small businesses — to increase liquidity, decrease burn rate, increase runway and ultimately increase thee chances of surviving the so-called apocalypse.
In no particular order…
1 — Review Online Subscriptions
Now is a good time to review your bank statements for all of those SaaS platforms that your company is signed up to — but either isn’t using and kept blindly paying for, or won’t be deriving much value from in the current climate.
Either suspend, cancel or scale back the number of accounts you have.
If this isn’t an option then you might try to contact these companies and renegotiate your monthly fee for the duration of the crisis.
2 — Renegotiate Supplier Contracts
Renegotiate contracts with essential suppliers to lower prices for the duration of the crisis. Jeffrey Epstein from Bessemer Venture Partners suggests doing so in exchange for a longer term contract so everybody wins.
Where possible, think win-win instead of zero-sum — something that’s critical in a time when we need to be coming together.
3 — Use Invoice Factoring
If you need money now and your typical payment terms are long, and your debtors are at risk of defaulting — consider selling your invoices to factoring services for a discount. For example, if a client owes you $50,000 but isn’t set to pay you for another 60 days — and you need the money now (hopefully you’re not living so close to the red) — then you might be able to sell the invoice for $40,000 and get the money today.
4 — Offer Discounts
It’s a tough time for most businesses — even Kimberly Clark, which owns brands such as Kleenex and Huggies and moves a lot of toilet paper, is down 15% from a month ago as at the time of writing. Companies will be tightening their belts, and following steps as these, so if you continue to have outgoings but see your income start to drop off a cliff, it might be time to reach out to clients and prospects you’ve had conversations with and offer discounts on services or products they’ve expressed interest in.
5 — Reorganise around New Demands
Every company has a set of assets — people, intellectual property, technology, capital — that it leverages to create value and generate income. For example, if you’re a consultancy, then people are your asset.
The temporary reality we find ourselves with is seeing the attentions and appetites of customers shift — large companies are concerned with how to get remote working right, while customers are more concerned with stocking up on essential goods like food and hand sanitiser.
How might you use your existing assets to temporarily serve new market demands?
For example, at Collective Campus we typically run innovation workshops and run corporate-startup partnership programs, but we have reassigned some of our assets around running remote working webinars to help our clients make the shift.
6 — Brainstorm Survival Strategies
Call a virtual huddle with your team to brainstorm products, services or strategies your company might employ to get by that go beyond what’s listed here.
To avoid groupthink or anchoring, have everybody ‘work alone together’ to write down their ideas privately before sharing them all at once. After everybody has shared their idea, have everybody privately vote on the ideas before discussing the results in a group setting.
To assist with voting, you might have people rate the ideas using the ICE scale (rate each idea out of 10 for impact, confidence and ease and then sum the result).
Once you’ve got a shortlist, find ways to quickly test market appetite for these ideas — such as an email to your database or an online ad — before investing in developing said products.
7 — Take Advantage of Government and Lender Concessions
Governments and lenders around the world are offering all manner of concessions to businesses to help them weather the storm.
This includes tax breaks, deferral of repayments, interest free loans, instant asset write-offs, and cash handouts. Inform yourself of the available concessions in your country, state or locality and capitalise now before the inevitable processing bottleneck takes effect.
8 — Apply for Government Grants
Now might also be a good time to review what grants are available for companies like yours. These aren’t COVID19 specific grants but grants that exist to say, stimulate startup activity or promote the development of novel technologies.
Maybe you didn’t have the time to review and respond to such offers previously, but might find yourself with not just a little more time on your hands to do just that, but also with a much greater need.
9 — Review your Business Model
Again, with more time on our hands, it’s a great opportunity to stop and reflect on the big questions that usually fall victim to our working in the business instead of on it.
Every quarter, my team and I sit down to assess how we’re tracking. We simply draw up a four-quadrant chart on a whiteboard with more, less, start and stop in each quadrant (below). We cycle through product, sales, marketing, target market and other areas to determine what we need to stop allocating resources to if it’s simply not working or what we could be doubling down on.
This keeps us from doing ‘what we’ve always done around here’ and ensures we maintain a culture of experimentation, optimise our allocation of resources and move forward.
Your company might emerge out of this with a stronger business model, or a more clear vision.
Note: Keep in mind what the world might look like when we come out of this when going through this exercise.
10 — Offer Remote Services
Consider what kind of remote services you might offer your clients. This might be especially applicable for B2B companies.
11 — Call Key Clients
Call your key clients — the ones you have solid relationships with .
This serves two purposes:
- you’re calling to see how they’re doing and demonstrating that you actually care, which can only serve to strengthen your relationships
- you can determine if there are any struggles they’re having that your your company assist with — assistance that they might be willing to pay a small fee for.
12 — Review Your Marketing Spend
In this current climate, it’s easy for a lot of your marketing dollars to be flushed down a black hole. Turn off underperforming or non-essential ads (note: observe how your marketing performed during the period March 9 to March 20 — this is when reality set in for most businesses in the west).
At the same time, it’s worth noting that you might be able to buy advertising and marketing services at distressed rates — which is fine as long as the short-term value as opposed to the conventional lifetime value, beats the cost of acquisition.
13 — Offer Gift Certificates
If applicable, offer gift certificates whereby loyal customers can continue to support your business for products or services they are likely to use in the future but now now. This helps you to bring forward some future income.
While this is something that seems to be more applicable to brick and mortar businesses like restaurants, it might be something worth considering in other types of businesses — especially if those gift certificates offer the ability to lock in products at a discount.
14 — Renegotiate Interest Rates
Central banks around the world are dropping interest rates — in many cases to zero — so if you have business loans — or personal loans for that matter — get on the phone and renegotiate your loans.
15 — Collect Outstanding Debts
Review your outstanding and overdue debts, and get on the phone, send those emails and do what you can to get paid as soon as possible. Having said that, you’ll want to be diligent about how you do this as not burn any bridges or compromise any relationships — we’re all doing it tough and that includes your clients.
16 — Consider Selling Investments
If your company has invested spare capital into stocks, bonds, property or commodities, consider the risk of the underlying assets defaulting.
If there’s a good risk of default, you might be better off locking in your losses than walking away with nothing.
17 — Consider Buying Investments
If you have more than 24 months runway then explore the merits of investing in seriously distressed stocks, bonds, real estate or commodities, perhaps via a diversified index fund, in order to lock in a significant capital gain during the recovery. If you purchase a stock that has fallen 50%, and it makes a full recovery in 24 months, then you have effectively doubled your money — it would seem to be a great time to buy if you have money.
Caution: Nobody knows where the ‘bottom’ is and just how bad this thing will be, so it is possible that companies with typically sound fundamentals could go bust. There are no guarantees in life, and COVID-19 reminds us that black swan events do happen and they serve to challenge our entire world view. However, it is almost certain that the current bottom is not tomorrow’s top, and that markets will, over the long-term at least, make a full recovery.
Note: I am not a financial advisor and this does not constitute financial advice. You should consider seeking independent legal, financial, taxation or other advice before making investment decisions.
18 — Introduce Paycuts and Defer Bonuses
It’s a time for fiscal frugality, and with so many people losing their jobs in the current environment — unemployment is projected to hit 20% in the US — a temporary pay-cut to the order of about 20–30% is preferable to losing your job altogether.
While never an easy conversation, your staff are are unlikely to be spending as much money as they normally do and will likely be presented with other Government concessions and handouts themselves, so it’s a matter of mutual sacrifices for the greater good.
The counterfactual might be that your company runs out of cash and your staff end up jobless anyway in a market characterised by hiring freezes — I’d rather take a paycut.
19 — Scale Back on Perks and Fringe Benefits
You might also want to look at other perks or fringe benefits that you’re offering employees — scale back or temporarily eliminate those that are non-essential and definitely not need-to-haves in the current climate.
20 — Offer Redundancies
Price’s Law suggests that the square root of a company’s headcount creates half of the value, so if you’re a team of 20, then about 5 people would create half of the value. As such, there might, sadly, some tough decisions to make by way of letting less essential people go.
If you can manage it and only if you can manage it, offer them some kind of lifeline or redundancy package on their way out — do the maths to make sure this is preferably to keeping them on the books for the next six months, and ensure you have enough liquidity in place to keep rolling.
Personally, I’d rather not let people go in the current climate. It’s a matter of what you want to optimise for — the health, wellbeing and survival of your people, or your company making money. I’m not saying there’s a right or wrong here but this is question many entrepreneurs will need to answer.
21 — Offer More Attractive Terms to Investors
If you’re a startup that’s staring down the barrel of a 6-month runway, you might want to offer potential investors — be they angels or venture capitalists who have the capital to invest in the current environment — more attractive terms.
It could be a convertible note with a larger discount, or a lower valuation. Whatever the case, make sure it’s something that’s not debilitating and that it serves to do more good than harm to the company in the long-term.
22— Scale Back on Office Space
COVID-19 has sparked a remote working revolution of sorts that might last long beyond the end of the crisis. At least for the next few months, it’s likely that you won’t need as much office space as you’re paying for.
Renegotiate rent or scale back on office space if you can. Companies based in coworking spaces on month-to-month contracts have a lot of flexibility in this area.
23 — Inspire Confidence in Your Team
While it’s easy to immerse ourselves in nothing but COVID-19 news and tweets, and become incredibly depressed in the process, and project a sense of doom and gloom to your team, you’ll want to inspire confidence to ensure that they are motivated to keep doing their part to keep the company on its feet.
Leaders earn their stripes in times of adversity, so it’s time to earn yours.
Finally, you won’t have much of a business if you cease to exist — so above all else, don’t underestimate the virus. Take care of yourself, practice social distancing, wash your hands and do all the things we’re being asked to do.
As the founder of a small business myself, I’d love to hear what other tips you might have that I’ve missed. If you add them to the comments I’ll incorporate them into this post so it’s a living and breathing collection of genuine helpful steps people can take to weather the storm.
Stay safe out there.