We’ve been on a wild ride financially this year. We’ve had bank failures, inflation, and interest rate hikes, all while wondering if a recession is coming, if we’re actually in a recession, or if we’ve escaped a recession.
Remember that the economy is cyclical and will recover. But in the meantime, companies must make strategic decisions to protect their business. As someone who has funded companies like Stasher, Coola, and Baby Gourmet at various stages for almost 20 years, I’ve learned that the way forward in a flagging economy isn’t always obvious.
Here are three surprising things startups should be doing right now.
1. Invest instead of lay off
For companies that need to reduce costs, downsizing is a logical way to do it. It’s certainly a strategy many companies have been adopting lately: according to Layoffs.fyi, the total number of tech layoffs in 2023 is close to 228,000. And sometimes downsizing is necessary.
However, I suggest that startups look closely at other cost-cutting opportunities, as layoffs can negatively impact their ability to compete in the market. Retaining your qualified and talented employees is the key to continuity. The time and money invested in finding, hiring and training a new employee when you are ready to rebuild your team often far exceeds what you have saved.
In fact, I would argue that it’s time to focus more on your team. Invest time and effort now in employee engagement, training and development opportunities. Train your team across the board to improve flexibility and adaptability within the organization. Foster a positive work culture – not only does this help you retain your talent, but it also sets you apart from companies that are neglecting culture, making employees feel undervalued.
2. Get into debt
According to CB Insights, nearly a third of businesses fail because they run out of working capital. Having enough funds to keep operations running, payroll, buy equipment or grow is obviously vital to business continuity. VC money has been plentiful in recent years and bank loans have been readily available. But that has changed and some companies are struggling for funding.
Companies often shy away from an opportunity to secure working capital. You hear the word “debt” and think about drowning in credit card bills or student loans. But I want to tell you that debt is not a four-letter word.
Think of it this way: without debt, you wouldn’t buy a house. A mortgage allows you to buy the home you want, not the home you can afford with the money you have available. Likewise, debt will help you get the business you want.
Having debt in the form of a line of credit not only allows companies to get the working capital they need, but they also retain control of their business and ownership of their equity — something they can lose if they attract investors. This allows you to remain in control of your business decisions and keep a larger portion of your winnings and any payouts.
3. Make hasty decisions
Economic volatility can be scary and make you uncertain about what’s next. Pulling back and waiting for the storm to pass, or pausing to observe and then make decisions seems like a safe bet. But we’ve been in economic downturns before, and the key is to take what you’ve learned and apply that knowledge quickly. According to McKinsey & Co., successful companies have acted quickly in past recessions by increasing productivity, maintaining growth capacity, divesting more, preparing for downturns, acquiring more early in recovery, and creating operational and financial buffers.
In addition, it is becoming increasingly difficult to raise capital, so acting quickly can help you get the money you need. Taking too long to decide on a course of action can put you in a bad spot.
Why use these unconventional strategies?
During an economic upheaval, employing unconventional strategies can help companies meet challenges. Turning initial thoughts on their head could well be the right way to master economic turbulence and emerge from it even stronger.
By avoiding layoffs and prioritizing talent retention and development, startups can solidify a competitive advantage in the marketplace. Using debt as a means of raising capital offers entrepreneurs the opportunity to retain control and ownership while having the resources necessary to sustain operations and even grow. Finally, startups can proactively adapt to the ever-changing market landscape by making quick decisions.
Businesses that embrace unexpected approaches—along with creativity, resilience, and strategy—are poised to weather the storm, thrive, and pave the way to long-term success.
Jennifer Palmer is the Founder and CEO of JPalmer Collective, a provider of customized asset-based lending solutions focused on providing equal access to capital for women-owned businesses. She has 17 years of experience in commercial finance and is committed to shaping the future of finance to be women-inclusive.
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