Startups face a unique challenges during economic downturns. They typically aren’t yet profitable and so are reliant on outside funding—and therefore are especially exposed when macroeconomic conditions change. To make it through a recession, startup CEOs should hit the road and talk to customers. They should also focus on preserving their company culture and retaining top employees. And they need to do whatever they can to extend their runways—including taking on a line of credit.
With stocks down 20% from their highs, we are officially in a bear market. Many economists predict we will enter a recession in the next few quarters if we’re not in one already. What strategies and tactics should startup CEOs use to prepare for and survive a recession?
I’ve spent the last three decades in the software industry, including three stints as CEO as well as serving on the boards of 10 private companies and as an advisor to many others. I’ve led or advised companies through the dotcom bubble bursting, the 2008 financial crisis, and the Covid recession. While every downturn is different, in my experience there are some essential steps that startups should take when the economic environment deteriorates.
Take steps to extend your runway. Now.
When a recession hits, it gets a lot harder to raise capital. You need to extend your runway or your “cash out date,” so plan to survive on the capital you have. Only spend money to make to your product or service better or to drive new sales. No more “nice to have” expenses: Scale back on new initiatives, prioritizing only those that have a near-term chance of success.
In recessions “cash is king,” so you need to make sure you have enough to get through to the eventual expansion. Take on a line of credit to augment your equity capital. Interest rates are still reasonable and cheaper than new equity funding, even with rates rising.
Proactively embrace your best customers.
A recession is a perfect opportunity for you as CEO to strengthen your relationships with your biggest and most important customers. Remember they are feeling the threat of recession as well. Customers always want to meet the CEO of the company they have purchased from so this is an opportunity for you to hit the road, visit customers, and spend time with your salespeople. If you cannot have an in-person meeting, meet on Zoom. If you are uncomfortable selling, get over it. I recently spoke to a founder/CEO with a technical background who told me he “learned to appreciate sales” even though he was uncomfortable selling at first. If you’ve historically thought your time was best spent on product, it’s time to reconsider: In a downturn, your best use of time is talking to customers and making sales.
Remember that it is easier and cheaper to sell more to existing customers than to land new customers. This is especially true in a recession as everyone is taking a second look at all expenses. If you are in a B2B business, visiting customers also gives you real insight into how happy your customers are and whether you are at risk of customer churn. If you run a B2C business, invest in rewards programs and other initiatives to make sure your best customers feel appreciated. Churn risk increases during recessions as companies prioritize their spending and pull back on new initiatives. High churn rates have a direct impact on company valuations. As a CEO you are in the unique position to lead by example and your employees will recognize your effort.
Stay close to your venture investors.
2020 and 2021 were frothy years for venture capital and many venture firms bid up start up valuations to unsustainable levels. Those same investors must now decide which of their portfolio companies to prioritize and support as the economy slows. Investors will need to reserve capital for subsequent fund-raising rounds for portfolio companies to see them through to success.
In 2022 down rounds are becoming more common. As a CEO, admitting that your company has a lower valuation can be very difficult. It’s important for you to communicate often with your venture investors to make sure they see your long-term potential.
Embrace your best employees.
Recessions force employees to re-think their career choices. If employees start to doubt the viability of the company, they will take the calls from larger firms in the market — regardless of their equity upside — that can pay more in current income, bonuses, and benefits.
Get ahead of this. Spend time with your best employees making sure you understand their mindset. Employees always assume their equity stake is based on the last round of funding, so down rounds create employee angst. Losing top talent will have a very negative impact on your company. Managing and maintaining your momentum is critical both in terms of retaining your top talent as well as recruiting new talent.
Several times in my career I got ahead of this issue by offering additional stock option grants to top employees to make sure they did not even take the recruitment calls. It works. It’s far easier to get ahead of retaining top talent than it is to try to counter-offer once your employees are entertaining other options.
Emphasize and rally around your unique culture.
In my experience as a CEO, culture was by far the most important determinant of employee retention. Employees know their market value, and most stay with you if they are compensated and happy and feel they are making a difference. Focus on culture and communicate your company’s uniqueness and value proposition.
At Black Duck Software, an enterprise security startup, we created an equity and learning culture. Every employee was a shareholder and viewed the company as their own. We created learning and education opportunities and employees felt they continued to learn and grow by being part of the company.
Unique and identifiable culture is critical to motivate your entire team ready to fight through adversity. It may seem counterintuitive to both reduce expenses and focus on culture. It’s possible because funding unique cultural events is not expensive. It really is the thought behind the gatherings that count and that have an impact on employee morale. At Black Duck we held a Star Wars lego building competition for our software developers. The event was widely popular as the developers were able to publicly display their creativity and have and fun, and did not cost much to pull off.
Every company’s culture is different, but now is the time to double down on it. A good culture will help retain talent and ensure that you’re able to make it through tough times.
. . .
Recessions are a natural part of the business cycles and companies of all sizes must weather them or wither. Startups face a unique challenge because until they become profitable, they rely on outside capital to fund their growth and evolution to maturity. To make it through and emerge even stronger, conserve cash, and pay close attention to your customers, investors, employees, and culture.
Four Effective Tips to Improve Labor Management in Companies
Businesses worldwide are always on the hunt for ways to improve their processes and add more efficiency to day-to-day functions. Of course, labor management is one of the major aspects of every company that demands continuous attention and improvement.
Every business understands that effective labor management is essential when it comes to increasing the productivity, safety, and efficiency of every project. The managers bear all burden to ensure that the labor is working effectively to meet the needs of supply and demand chains.
Here are some effective ways to improve labor management in your company for the best of your business.
1. Use Standardized KPIs
It can be hard to hold someone accountable for their performance when there is no evidence to back up the claims. In such circumstances, the labor deserving of praise may be left out, and those who need improvement may continue to waste company time and resources. Of course, such practices can cost you a lot of time and money in the long run.
Hence, smart companies worldwide are using Key Performance Indicators (KPIs) as a tool for worker motivation and accountability. These indicators help them better understand why certain standardized goals exist and their role in making the company succeed.
2. Incorporate a Software
Managers have a lot on their shoulders in addition to managing the workforce. A few people cannot keep an eye on everyone throughout the day. They need Kaizen Software to find the best solution for labor management. This way, the managers can find time to pay attention to many more important matters.
Efficient management software is being used worldwide due to its countless benefits. They offer security, better communication, and enhanced tracking to make your business more efficient. Hence, your business will have a better opportunity to grow and bloom.
3. Ensure Safety at the Workplace
Every workspace has its own challenges. However, everyone can agree that industrial workers have more challenges when it comes to safety. After all, they are surrounded by heavy machinery and face increased chances of accidents, injuries, and even fatalities. Hence, it must be a top priority to make your workplace safer.
You can start by looking into the hazards in your workspace and minimizing them one by one. In addition, it is also important to ensure that all your workers have access to safety gear at all times. Caution can save more lives than building an elaborate regime to care for injured workers.
4. Keep Workers Posted
Whether a construction site or a chemical industry, there can be new hazards and precautions for workers every day. A little negligence in the workplace can lead to a regrettable accident. Hence, it is always a good idea to keep your workers informed about current events.
Knowledge about company procedures and safety rules can reduce insecurity among workers and increase their efficiency. It is best to let your workers know that all their questions will be answered. This way, they can feel more comfortable seeking your guidance instead of finding out by trial and error.
10 Key Strategies for Managing and Engaging your Employees
Effective employee management and engagement are crucial for small businesses to foster a positive work environment, maximize productivity, and retain top talent. Small business owners need to prioritize their employees’ well-being, provide growth opportunities, and create a culture that promotes engagement and collaboration.
Here, we will explore ten strategies and practices for employee management and engagement in small businesses.
1. Clear Communication and Expectations
Clear communication is vital to set expectations and ensure alignment between the business and its employees. Regularly communicate goals, priorities, and performance expectations to your team. Provide feedback and recognition for their achievements and address any concerns or issues promptly. Encourage an open-door policy and create channels for open dialogue and feedback.
2. Training and Development Opportunities
Investing in training and development opportunities for your employees demonstrates your commitment to their growth and success. Identify areas where employees can benefit from additional skills or knowledge and provide relevant training programs. This can include workshops, conferences, online courses, or mentoring programs. Encourage a culture of continuous learning and support employees’ professional development.
3. Employee Recognition and Rewards
Recognizing and rewarding employee contributions is essential for fostering motivation and engagement. Implement a recognition program that acknowledges outstanding performance, teamwork, and achievements. This can include verbal praise, written appreciation, or tangible rewards such as bonuses or incentives. Regularly celebrate milestones and accomplishments to show appreciation for your employees’ hard work.
4. Work-Life Balance and Well-being
Promote a healthy work-life balance and prioritize employee well-being. Offer flexible work arrangements when possible, such as remote work options or flexible scheduling. Encourage breaks and time off to prevent burnout. Provide resources and support for physical and mental well-being, such as access to wellness programs or employee assistance programs. Show genuine care and support for your employees’ overall well-being.
5. Foster a Collaborative and Inclusive Culture
Create a collaborative and inclusive culture that values diversity and fosters teamwork. Encourage open communication, idea sharing, and collaboration among employees. Foster an environment where everyone feels valued, respected, and included. Embrace diverse perspectives and leverage the unique strengths of your team members to drive innovation and growth.
6. Performance Management and Feedback
Establish a robust performance management system to set clear goals, provide regular feedback, and evaluate employee performance. Implement regular performance reviews to discuss progress, identify development areas, and set new objectives. Provide constructive feedback that focuses on both strengths and areas for improvement to support employee growth.
7. Empowerment and Autonomy
Encourage autonomy and empower employees to take ownership of their work. Delegate responsibilities and provide them with the necessary resources and authority to make decisions. Encourage innovation and creativity by allowing employees to explore new ideas and approaches. Trust their expertise and provide guidance when needed.
8. Career Growth and Advancement
Support your employees’ career growth and advancement within the organization. Provide opportunities for skill development, such as stretch assignments or cross-functional projects. Offer mentorship programs or coaching to help employees navigate their career paths. Create a clear path for advancement and communicate the potential growth opportunities available to them.
9. Team Building and Social Activities
Organize team-building activities and social events to foster strong relationships among your employees. This can include off-site retreats, team lunches, or recreational activities. Encourage team bonding and camaraderie to enhance collaboration and create a positive work culture.
10. Continuous Improvement
Establish a culture of continuous feedback and improvement. Encourage regular check-ins between managers and employees to discuss progress, challenges, and goals. Solicit feedback from employees on processes, policies, and workplace initiatives. Actively listen to their suggestions and make necessary improvements to enhance the work environment.
Effective employee management and engagement are critical for small businesses to thrive. By prioritizing clear communication, providing training and development opportunities, recognizing and rewarding employee contributions, promoting work-life balance and well-being, fostering a collaborative and inclusive culture, and implementing additional strategies such as performance management, empowerment, career growth, team building, and continuous feedback, small business owners can create a positive and engaging work environment.
Investing in your employees’ success and happiness not only benefits them individually but also contributes to the overall success and growth of your small business.
Secure your startup’s future by watching the big corporations
Welcome to Startups Weekly. Sign up here to get it in your inbox every Saturday morning. Starting next week, it moves to Fridays at 12 pm PT.
As a startup founder, wouldn’t it be awesome if you could predict the future a little bit more than you currently do? It turns out you can: By paying close attention to what the behemoths in your space are doing. Last year’s AWS Re:Invent set the direction for a lot of what Amazon is doing this year — including where it invests. Re:Invent 2023 is coming up soon.
Google I/O revealed that Google is investing heavily in computational photography, large language models and all things AI. As a startup, you can use these data points and draw a line into the future: Can you align yourself with the big-picture trends? Are you missing anything?
This week, at Apple’s worldwide developer conference WWDC, the company took the wraps off its AR/VR headset. Priced at $3,500 it won’t be a commercial success, but as a startup, you’d be very silly not to pay attention: It is a complete game-changer for startups.
Startup valuations are taking a pounding
After a frothy few years of don’t-call-it-a-bubble, it seems like the inevitable market correction is here. We’ve seen wave after wave of tech layoffs, and it seems like investors are starting to take a more realistic view of their investments, starting to mark them down.
Marking down an investment doesn’t necessarily mean drama; it refers to the common process of adjusting the value of an investment asset to reflect its current market value. In the case of VC, that often happens if the valuation turned out to be a bit on the optimistic side. Investors will typically mark down investments to avoid overstating their portfolio’s worth. In a nutshell, it’s best practice to acknowledge potential losses before they are realized. That’s what is happening now — and perhaps should have been happening for a while, as Rebecca argued late last year, when she noticed that a bunch of startups had quietly marked down their own valuations.
Jeremy Abelson and Jacob Sonnenberg, both at Irving Investors, argue that if you haven’t yet, you probably won’t grow into your 2023 investment valuation.
Just in the past few weeks week, we had another handful of examples of this:
Life is a highway
The EV space is exploding (sometimes literally) at the moment, and there seems to be a huge amount of stuff in motion in the world of transportation.
Mercedes just got permission from the state of California to start selling a car that can self-drive without having to hold the wheel or look at the road. No doubt this’ll set Elon Musk’s little temperature gauge to “furious” as the company’s cars do attract a federal tax break but come up short on the self-driving front in its native California.
Price is often brought up as a major hurdle for EVs, but Volvo snuck out a small SUV that can cruise along for 275 miles and has a sub-$35,000 price tag. That still isn’t pocket change, but it’s a lot cheaper than a lot of the EVs on the road. Meanwhile, Fiat showed off a city vehicle it’s working on that made both Harri and myself squee with delight.
Safety is another theme across TechCrunch’s transportation coverage: Smarter cars should, in theory, mean safer roads. In practice, Waymo had to explain why one of its autonomous Jaguars ran down a dog in San Francisco last month, and Transportation’s National Highway Traffic Safety Administration (NHTSA) recently proposed a rule that means all new cars and trucks would need to have emergency systems that “would have to be capable of stopping and avoiding contact with a vehicle at speeds of up to 62 miles per hour.”
Remember what we said about legislation driving innovation and opportunities for startup? That proposed NHTSA rule falls into that category. Thought experiment: Could your company tap into that shift somehow?
Apple sets the pace
While Apple isn’t really a startup, it is the world’s first $3 trillion market cap company, so in a week where our servers have been melting from all of the exciting news that came out of the WWDC keynote, I wanted to highlight some of the things that are most interesting to startups and startup founders.
One thing worth paying attention to is the Apple Design Awards, which often foreshadow large trends in design and user experience best practices — along with what the Cupertino-based software giant celebrates at the moment.
Another trend worth paying attention to from Apple is its focus on health and safety: It released a check-In feature to ensure people get home safe, a nudity filter to shield you from unsolicited real-life aubergine emoji and mental health mood tracking. All of that is specific to this WWDC, but it continues a trend: Fall detection, car crash detection, ECG to detect heart events, and lots of other health and safety indicators. It has made it easier to find and disable AirTags that might be used for stalking, and a Safety Check and lockdown mode, which takes your iPhone off the radar to get away from an abusive partner (more from our security team here).
As a startup, all of the above should give you pause for thought: There are big trends at play here that Apple clearly wants to continue to invest in. Apple has gone heavy into the privacy of your data, and leaning into security, safety, mental and physical health and more. Build something truly innovative in these spaces, and you have the world’s most valuable company validating that these are problems worth solving.
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