Updated: Aug 20, 2020
We are about to pass the 6 month mark on life with COVID. We have sewn our own face masks, perfected our sourdough starters, fostered a shelter animal, and found our favorite Zoom virtual backgrounds during this time. Despite these changes, many held a small hope in the back of their minds that life would go back to “normal” sooner rather than later. Labor Day became the magic, albeit arbitrary, threshold for making big decisions about how to survive and function in the long-term. Well, Labor Day is fast approaching, and it is clear that there will be no vaccine and no approved treatments anytime soon. It’s time for startups to face the music – this new reality is here to stay.
Startups need to have a 12 to 18-month plan in place to survive the pandemic if they don’t already. So many factors are uncertain right now – supply chains have been interrupted and consumer habits are changing. The only thing a startup can control is itself.
The current name of the game is cash management. Any business with negative cash flows is particularly vulnerable during an economic crisis. Startups are particularly vulnerable because they lack the track records of more established businesses. So what can startups do? Scrutinize all expenses, revisit all variable costs, extend payables and expedite receivables where applicable. Every incremental step taken to preserve cash flow will benefit the overall health of the financials as time goes on. When we have the pandemic in our rearview mirror, the startups that survived will be those who implemented a cash management strategy early and stuck to it.
But what about financings? The good news is that venture and private equity firms are still writing checks. The news is even better if you happen to be a healthcare, life science, or wellness startup, since these industries are maintaining the spotlight during the pandemic. But as with all things, startups need to hope for the best and prepare for the worst. Investments may still be happening, but it’s no secret that the future is uncertain. Regardless of industry, investors are being more cautious and putting extra due diligence into their investments. Also, any twist of fate could stop deal flow. As a startup, this means founders need to be hyper-prepared if they’re pitching to investors. It also means founders need to have a Plan B in their back pocket in case the tides turn on them.
So now that we’ve reached Labor Day and realize we can’t keep kicking the can down the road on our major decision-making, it’s time to buckle down and make some hard choices. But for those founders and startups that are able to do this, they’ll be positioning themselves for survival through one of the hardest and most unpredictable periods in recent history.