How a startup should react to a market downturn
The economy is in a bit of a weird place at the moment. Here’s a graph of the NASDAQ over the last month:
Because of an asset bubble in China, interest rate hikes by the Federal Reserve and a recent nuclear testing by North Korea, the stock market took a big fall during the first week of trading in 2016. On top of things, today oil hit a seven-year low.
Now you might be asking yourself: “Tim, why is a startup CEO concerned about this?” The New York Times recently ran an article that points to this exact issue.
What might happen?
In the event of a recession, sales cycles will lengthen, churn rates may go up, and it may be harder to hit company goals. At some point in the near future, venture capital will dry up and as companies will need to be self-sufficient with their own profits. Startups will need to closely monitor all these signals going forward.
Is that likely?
Who knows. Reasonable people are pretty evenly split on this one. I personally think the chances of a recession are low and the media is blowing this way out of proportion.
What does a startup need to do?
In any case, if you’ve recently entered the workforce, like many of us at FiscalNote, you’ve never worked in an environment where the market was bad. In fact, during the entire life of FiscalNote, the economy has done nothing but go up. That being said, there’s nothing we can do to control the markets — we can only react to it and control everything else within the walls of our own companies. Markets will always go up and down.
The important thing is to continue to hit goals. Continue to think about your real customers who have real problems that need to be solved, regardless of whatever the market is doing.
We need to have a sense of urgency to our goals and carefully scrutinize every single cost. Fundamentally, businesses come down to two things: revenue and expenses. A fast-growing startup can never be complacent — it can always have more revenue. Continue to identify new business opportunities. Sales cures all.
However, it is best to prepare for the times in which clients are tightening their spending. Extra padding in the budget and low operating costs will assist in seeing a company through low sales periods. Frugality matters.
This is the time to ask yourself: “Am I spending my time in a way that results in the highest amount of output?”
Is there a silver lining to all of this?
Yes. The best and most beautiful bridges in the world were actually the most inexpensive. Restricted budgets allowed for outside-of-the-box thinking that really stretched the imagination and motivated people to accomplish their mission.
Downturns are incredible opportunities for companies with strong revenue and disciplined costs. The lack of capital vaporizes all early-stage copycats and competitors. Office space will be cheaper. Everything becomes cheaper.
It’s only the start of 2016, don’t let a market downturn stop you from giving 150 percent in making your company successful.
