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6 Ways for Startups to Be Savvy in a Recession

As the world is on the brink of a recession, one can expect the bullish decade for startups and tech companies to inevitably turn to doom and gloom. Indeed, the biggest tech companies in the world have crossed the trillion-dollar market capitalization in the last few years - Apple, Microsoft, and Alphabet. But the COVID pandemic sent the global economy down. Followed closely by geopolitics-driven turmoil.

We are already seeing slowing down in the investor activity with the IPO market shrinking 54% in the first half of 2002 compared to last year.

Fundraising for Israeli companies in the second quarter of 2022 fell 31% followed by cuts in R&D and cybersecurity jobs. Tech startup nations US and India have reported bumper job cuts in the tech startup sector of 24,000 and 12,000 respectively.

The startups most in danger are ones that need to raise more money to survive, those that are not profitable yet. They are the ones that can potentially go bankrupt.

However, there are also startups that made recession work for them. After all, Airbnb, WhatsApp, and Instagram were all founded during the recession of 2008 and are thriving now.

6 steps startups can take to be more competitive during the economic downturn

  • Analyze the core of your business offering and maybe rethink it. Gurus say that if a startup helps other companies make smarter financial choices and materially save money, there will be a demand even during a recession. For instance, the growing concerns for businesses in our day are the growing costs of data storage, the internet of things, healthcare services, to name but a few.

  • Look for angels and seed investors with riskier profiles. If they believe that your startup is worthy of existence at any time, there’s no time like recession to buy a stake. As the money is devaluing, your share of business is gaining value, which the investor will be happy to see in time. Be prepared to give up a larger share stake.

  • Clean up and create a leaner ownership structure. Recession may be a good time to say goodbye to those friends and partners who have lost interest in the startup many months ago. It may also be a time to cut staff if yours was overblown.

  • Reevaluate your plans to break even or reach a certain scale. Now may be time to speed up these plans in order to raise financing.

  • Analyze your finances. Thorough analysis of revenue streams and costs will not only bring clarity into the spending structure, indicate potential for saving and layoffs, but can also bring in creativity in cost-cutting solutions. We recommend outsourcing the analysis to an external auditor or accountant. They will have a fresh look, an unbiased opinion, and professional expertise that internal people may lack.

  • Invest in staff retraining. If your business decided to keep its valuable employees, a good thing to do would be to invest in their training and upskilling. Adult education and retraining is the trend of our times. If in doubt what to train exactly - then train digital skills. Your company will come out of the recession with better qualified and motivated employees than the competition. At Step Up Finance we help corporations hire accountants that fit their needs and know how valuable are the people who have a basic education and additional relevant learning.

And a bonus unnumbered last tip, which in fact should come first, is - listen to your customers. They will give you the best guidance about what is really bothering them and what they need at exactly this time in life.


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