How Your Startup Can Cut Costs, Preserve Revenues, and Survive This Crisis
Updated: Jun 13, 2020
How do you guarantee the survival of your company and of your amazing team?
Even if you have money in the bank or if you’re profitable, given the looming danger of plummeting revenues, you will want to extend your runway as much as possible. But you should also take good care of the team that can seal your success when the storm is over.
As I got great feedback on my previous covid-management article, I thought that I’d write another one :)
The last article explained how you can maintain alignment and momentum with your teams working remotely for extended periods of time. This article focuses on your most important financial KPIs:
Revenues: how can you avoid losing your top customers and continue acquiring new ones, even if everybody is trying to “cut costs” right now?
Fixed Costs & Cash Flow: how can you cut your own costs without laying people off (and limit your burn rate or remain cash flow positive)?
Existing clients and New clients make up the bulk of most companies’ Revenues. On both fronts, you want to channel your team’s creativity and passion and give extra love to your clients, prospects, and employees alike!
(a) Existing clients
Losing any of your top clients at this time would be a disaster that will leave a deep scar in your P&L, even after this emergency is over. That’s why you want to absolutely storm your top clients. However, management should NOT hit the panic button and mandate top-down instructions: compared to an ordinary crisis, this situation carries a lot more uncertainty and you will need all the brainpower you can get, as McKinsey wrote in a recent report. So ask your Customer Success team (and perhaps other teams, such as Product, Ops, Finance) to huddle and come up with great ideas. They know their clients best and should be empowered to make the right decisions by following the company’s Strategic Imperatives (see my previous article). They will also feel a sense of ownership and importance, which will go a long way in keeping them motivated and passionate during these difficult times!
Beware of clients who want to just “take a break” and come back to you after the emergency - there is no guarantee they will. Keep them with you: take this opportunity to discuss how you can really add value to them during this time, potentially offer them a different service, perhaps with a discount or even deferred payment options for a bit.
Ideally you would apply the same process to all clients. But if the extra energy and resources needed mean that you can only keep some clients, then absolutely keep your biggest ones!
(b) New sales prospects
Ask your Sales team to compile a list of prospects who won’t freeze their budgets and are still likely to buy. Some prospects will be clear candidates because their business models are actually poised to thrive in this kind of situation. But your Sales people should have honest conversations with the prospects who seem likely to freeze budgets, too: they might surprise you and still be keen to progress the deal.
Understand that Sales people might feel discouraged to approach prospects during these strange times. Show empathy and encourage them to approach prospects with tact, but don’t let them shun the conversations entirely: every deal counts, especially now.
When you have this list -you guessed it- swarm those prospects with everything you can: creative deal terms, discounts, incentives, etc. Again, task your Sales team (and perhaps other teams) with coming up with their own creative strategy, so that they feel empowered and excited to hunt for new business even in these strange circumstances.
2) Fixed Costs & Cash Flow
Your employees’ salaries are probably your highest fixed cost by far. However, laying off your staff would not only be heartbreaking: it would cripple your business. Here are some ideas to cut costs and seek Government help, while keeping your human capital and the colleagues you love, so that you can build an ever stronger company together after this crisis is over!
(a) Fixed cost cutting
Many startups can save a lot of money if they temporarily reduce or suspend some employee benefits. While employees may not be thrilled about this at first, it beats layoffs or salary cuts any day!
You could also audit what subscriptions (software or services) you are paying for and how much your employees are actually using them. One Scaleup I advise was able to cut thousands of pounds of monthly expenses just by doing this!
Finally, rent: some Landlords have been offering to discount, defer, or even waive it. In my experience so far, this has mainly happened for very small startups, so it might not be possible for bigger rent contracts. But either way, while it’s not guaranteed to work, if you are going to shut down your offices you should have the conversation with your Landlord: you have nothing to lose and their generosity might surprise you!
(b) Government help
In the UK, the Chancellor of the Exchequer Rishi Sunak has announced unprecedented measures to help companies cope with this emergency. Below are some measures that could be relevant for your company - of course do consult your own Head of Finance or financial advisor to identify which measures can specifically apply and benefit you:
Q1 VAT deferment to the end of June 2020
HMRC’s flexibility with time to pay arrangements of February PAYE (you need to ask HMRC, but I know of multiple companies who got a 3-month deferment granted easily)
Coronavirus Job Retention Scheme: contributing to employee payroll for 3 months (note: unlikely to apply to businesses whose employees can work from home)
Coronavirus Business Interruption Loan Scheme: details still being finalised at the time of writing (unlikely to apply to loss making businesses)
Crises create winners and losers at unforgiving speed. It’s vital that you act fast to get your finances in order and weather the storm. I hope that this article gave you some practical ideas on how to avoid losing your business now and -hopefully- how to come out at the other end even stronger than you were before!
*** Would you like to ask specific questions that might help you save your startup or scaleup during this difficult time? Schedule a free call with me now, calendly.com/paolo-pironi/30min