The strategies to help startups survive the funding winter

A “Startups funding winter” is a period and situation in which there is a lack of funding and investment in startup ecosystems. Without adequate funding, startups must shut down entirely or sell themselves to competitors.

Though funding winter is tentative, the time frame and consequences are impossible to predict. Startup entrepreneurs must have basic strategies to keep them warm and afloat in rough waters.

The strategies to sustain the funding winter are:

• Look for alternative funding options:

  Startups can use debt-backed funding to keep a healthy debt-to-equity ratio while running their businesses. Plan the funding ratio between equity and debt rather than debt or equity. Firms like SMOOR chocolates sailed through the pandemic with a healthy turnover using debt-backed funding.

  Some debt-backed financing alternatives for assisting startups in scaling their operations.

  • Supply Chain Financing/Invoice Discounting

    helps D2C merchants handle inventory costs.

  • Revenue-based financing

    helps in scaling the business based on the monthly turnover.

  • Working capital financing

    helps new brands to handle credit cycle caps.

  • Asset financing

    helps heavy startups with funding for operational assets.

• Identify and focus on profitable customers:

  Startups must continuously evaluate segment/ customer level profitability; this constant focus on profitable business must be sharper during challenging times. Some customer segments may also be badly affected by the funding winter or reduced share of customer wallets. Moving organizational effort away from those segments that bleed the business is a critical decision; these decisions help preserve cash and organizational energy. In our experience, customer-level profitability focus has conserved more cash than multiple rounds of “overhead cost-cutting”.

• Enhancing customer experience:

  The customer is the “kingmaker” for your product, and their “word of mouth” can help you quickly get through the difficult season. It is the ideal time for startups to reach out to them. Along with the product, consistent customer service contributes to their retention.

  It is beneficial to appreciate them as part of the marketing strategy by providing them with coupons that do not impact the startups. Groupon was a startup during the 2008 economic crisis that successfully navigated the crisis by offering discount coupons.

  Engaging users, soliciting feedback, and incorporating good ideas into the product are the cornerstones of product and entrepreneurial success.

• Leveraging strategic partnership:

  Startups should try to leverage partnerships with firms of any size that have the potential to convert customers with a high rate of intent. There are two approaches.

  • Conversion cost

    Is reduced if the strategic partnership assists you in acquiring and retaining customers at a lower conversion rate cost.

  • Operating costs

    Are reduced if your strategic partners provide services required for business operations, such as IT and legal services.

  One classic example is Netflix, which launched a streaming service in 2008 when the customer base for renting movies was nearly depleted. Their collaboration with brands such as Nintendo and Xbox enabled people to stream content through these devices. This allowed the company to grow exponentially during the US economic downturn while other companies struggled.

• Introduce austerity measures:

  Startups can survive the harsh funding winter by lowering operating costs. One such tried-and-true method is employee layoff, which should be done simultaneously rather than piecemeal. This practice is preferred because it harms the employer and the employee psychologically and financially when downsizing is done frequently. To halt all HR-related activities concerning promotions, raises, and allowances. Employee retention is improved by giving them stock in the company rather than a large salary.

  Other than layoffs, some of the cost reduction programs run by our clients include Employee reskilling, vendor renegotiations, increased credit terms, debt terms rationalization, outsourcing of activities ( and pay-on-use basis), redefining marketing and business development KRAs, etc.

• Realigning business strategy:

  During the funding winter, startups do not have the luxury of making bad decisions. Any misstep will have far-reaching consequences. As a result, it is best to make decisions based on the circumstances.

  Many startups amass data that must be used for decision-making purposes. Data-driven decisions aid in avoiding avoidable costs and reworking the primary channel for consistent cash flow. A helpful hack that we have assisted our clients is employing probability models to evaluate strategies that minimize cash utilization or cash burn.

• Inculcate a positive attitude

  Challenges are inherent in every business, so funding winter is an integral part of it. Therefore, focus on the long-term objectives and maintain a positive attitude and healthy lifestyle. Only when you are optimistic can you motivate your employees?

Winter funding changes the narrative of the startup ecosystem, and they are always looking for alternative ways to keep it operational. Professional advisory services are one such option, and Astravise easily fits the bill.

We are professional service providers who assist in identifying, evaluating, and negotiating appropriate funding sources. We assist in developing a business plan to attract new investors, strategies for managing their finances, legal and financial aspects of the transaction, and obtaining a better deal. We partner with you in evaluating the best practices from across industries and executing a cost-reducing, cash-conserving business revival plan. If you are having difficulty with your startup or finding it difficult to obtain funds because your previous promoters no longer support you, discuss your current challenges with us. We will provide fruitful solutions, such as eliminating cash burn, stabilizing cash flow, and eventually growing.