The COVID-19 pandemic has created an economic downturn at a level never before seen, even during previous economic crises. As the pandemic rages on, the ambiguity of what might happen next causes even more problems for businesses, with no-one knowing for sure when it will end or what the final results of the effects will be.
Once it finally does end and the world slowly begins to return to some semblance of normality, one thing that is sure is that start-ups will need help in terms of both capital and practical support. Venture capitalists with a long-term eye on the future may be well-advised not to hold off on investment during this period of downturn, but instead to seek out new opportunities that present possibilities for long-term growth. There is precedent for successful companies being founded during a global recession.
Thibaut de Roux is part of the fintech ecosystem and acts as an investment adviser, which includes dealing with venture capital for software start-ups. While there are various challenges that will face both venture capitalists and start-ups in the coming months or even years, those that are able to rise to these challenges may find themselves better off.
Start-ups and growth-stage businesses are likely to find that their options for raising capital are severely limited during 2020 and perhaps even beyond. Evidence from the previous two global financial crises suggests that private financing will soften. However, all is not lost. Many internationally renowned brands managed to prosper, despite being founded at times of economic downturn. Venture capitalists may do well to remember that situations such as the one we find ourselves in now often breed greater creativity, innovation and focus. Sales may necessarily be slow at first, but history shows there will likely be a period of increased spending once the crisis is over.
Research and Development
Start-ups dealing with the fallout of COVID-19 would be well advised to spend some time focusing on research and development, to be ready when the time is right with a product or service that will out-shine the rest of the market. While sales will almost certainly be slowing down at this time, economic growth will occur eventually. Those businesses that are poised and ready with improved, products, streamlined customer service systems, and a readiness to respond to resumed competition and pent-up consumer demand may find sales beginning to soar once the economy begins its upswing.
Rather than funnelling money and time into sourcing new business at a time when this is likely scarce, businesses may be better served focusing on retaining existing customers and improving the services they receive. This should result in a more predictable revenue stream both during and after the crisis. Proactively contacting existing customers, addressing any concerns quickly and efficiently and ensuring they remain satisfied during the pandemic, will result in those customers remaining loyal and may lead to increased upsell once finances are more stable.
Technology may need to be implemented to automate systems as companies will naturally have smaller budgets to work with during this time. Using existing financial resources wisely and reallocating budget priorities is essential to ensure cash flow remains steady.