A major requisite for any Startup is the Cash flow. In today’s day and time, you need cash for everything and Startups are no exception to that rule. Cash crisis can hit a Starup due to many factors both extrinsic and intrinsic. If funding dries up the first impact will be on hiring, then on your salary, then on servicing customers and finally your startup shuts down. The best way to avoid that situation is to avoid that situation. As an old racing quote reads,” To finish first, you must first finish” .
Below are some of the Survival Hacks that can be looked at during such crisis.
- Personal Level: At the personal level, start salting away a large part of your salary and switch to office coffee instead of hanging out at the coffee shop. Your cash savings will help you survive salary cuts and stick around long enough to see your dream come true. Reduce unproductive, time-consuming activities and increase your commitment and output in getting that additional customer or beating your coding deadlines.
- Team Level: Do a cost analysis for your team. How much cash does your business or team currently control and how long can you stretch it? Longer the runway, better your chances. The right way is to calculate growth per unit of spend. Scrutinise each rupee of salary paid and each dollar spent on marketing. Now come the tough decisions. Eliminate the fat. Maybe it is time to stop advertising spend to conserve cash for product development or vice versa. Take a look at indirect costs. Maybe you do not need that swanky office with high rentals.
- Client Level: If your startup is selling to other businesses, it is time to on board multiple and nonstartup clients. Diversity of clients is your insurance against a single large client finding an alternate solution or your start-up clients folding up and leaving you high and dry. If getting new clients is difficult, consider two solutions. Strip your service/product of features and offer the basic version at a much reduced cost. Once you have a new customer, you will have all the time to upsell your bells and whistles. Secondly, customise service/product to what the new client is willing to pay for. Though customisation comes with a cost and is not always scalable, it is a small price to pay to stay alive. Additionally you have a portfolio of differentiated products/services that hike your marginal revenue.
Try to get to a stage where your startup’s revenues exceed your expenses. If that is how the situation looks then you are bootstrapped once again and your start-up can survive the longest winter.
Once the survival hacks are in place, it is time for some Success Hacks. We have listed a few here:
- Revamp business processes and improve your technology platform to eliminate or reduce use of manpower. Think Google, LinkedIn and Uber who do not even have a customer service desk. These companies refuse to solve recurring problems using people and are willing to remodel their businesses to have automated solutions. Put a cap on the size of your operations and technology team. This will force you to gun for efficiency and hire and retain the most productive.
- Put a cap on the size of your operations and technology team. This will force you to gun for efficiency and hire and retain the most productive. Even while you have an eye on costs, don’t skimp on key hires. By all means get the best graphic designer or the sales wizard.But hire one level below and prefer attitude over experience. The person who is punching above his weight will be more excited about the role than someone who has been there and done that.
- Work out unit economics of your business and get to a positive number. That means the direct revenues for a single unit of sale should exceed its direct costs. If you are in retail or e-commerce, then revenue per item will exceed cost of the item and its shipping.Similarly in consumer Internet, the lifetime contribution of a customer should exceed the cost of acquiring and servicing him. Once your unit economics starts looking rosy, you have a path to profits.
- Focus on marketing without a budget. If you are a technology firm, go for growth hacking, which means embedding user acquisition, on-boarding, monetisation and retention within your product design. If you are a non-tech firm, leverage social media through your employees and well-wishers to market your product or services without spending a dime.
Once you have your Survival and Success hacks in place it is time for some Quick Cash Hacks. So, read on:
- Advance Payments from Customers: Paying customers are the best investors, and this becomes even better if they can pay in advance . They want to see you survive so that they can enjoy your products and aftersales service so ask them to pay you in advance.
- Pay your Vendors Later: Try to renegotiate and increase your payment cycle to your vendors and channel partners. This will free up working capital, which is as good as a minor investment round.
- Increase ESOPS: Increase ESOPS and at the same time take down the salary payout.This reduces your burn and increases employee engagement at a time when you need it.
- Investors are Important: Try to convince existing investors for additional funds. . They want to see you alive and working hard on their investment.
- Valuate at a reasonable rate: Invite investments at a valuation that is attractive to investors. Though you sell cheap currently, you will live long enough to correct your valuation.