Navigating the Economic Pessimism As A Supply Chain & Mobility Startup

Founders should leverage their vantage point to be pragmatic, plan ahead, and exercise caution through a downturn

We’re coming into the new year with jittery equity markets amid an ongoing US government shutdown and trade war concerns. It seems markets are cautious and hopeful for solutions to our shutdown and amicable trade agreements. The perk of being involved with industries that are the backbone of the economy is that as founders, we tend to have a better pulse of the market: container flows, truckload volumes, warehousing activity, inventory builds, automobile purchasing, etc. It’s helpful to have such leading indicators and an understanding of sentiment given that a recession is called only after two consecutive quarters of economic contraction. It’s worth noting that perception and fundamentals can detach and that can be unnerving. A fundamentally healthy economy can be driven to recession if enough Americans “feel” less wealthy and curtail spending; business start to delay or defer hiring, purchasing, and investing; and credit moves slower across the system. Founders in the industry should leverage their vantage point to be pragmatic, plan ahead, and exercise caution through a downturn.

We tend to hear “cash is king” more often during recessions and resulting recoveries. Cash is always king and that means your startup should have enough to weather a 18–24 month recession (the last recession was 18 months with durations as short as 6 months). Understand that startups with product/market fit or a clear path to product/market fit will tend to raise financing albiet at slightly lower valuations. Middling startups namely those with a slower path to product/market fit, high capital consumers, or poor growth will tend to get cash at poor terms. A third bucket of startups might be unable to seek venture funding and will need to shutter or bootstrap through. The benefit of supply chain startups is that they tend to bring customers operating leverage and reduced costs — a huge focal point for any business dealing with economic contraction.

As a founder, be cautious, moderate burn and lean into exercises that can bring greater optionality in a slow business climate. If executed well, this can result in reduced (or no) reliance on outside investment. All that said, a slow-down is a boon for well-capitalized startups who can invest into a slow down. Prices tend to fall not only for assets but also talent, product investments, and customer acquisition. I recall learning early in my career that companies that invest through downturns (not only during growth cycles but consistently), especially when their competitors sit out, tend to be petter positioned during the upturn.

On the talent front, keep on top of competitors as well as employers of great, costly talent (think ML, data science, senior sales). Ensure a plan for new hires — what will they work on? can they “pay for themselves” within 12 months? How do we hire the best before others?

On product, founders (assuming you don’t have a PM yet) have to know their competition and competitive products really well. It’s essential intelligence to assist in ruthless prioritization and build for where the market is going. Generally this is talent-driven, hire more to build the high-need/high-value aspects of your offering you’ve deferred, didn’t have bandwidth to build, have your competitors beating you on the margin, or know will become necessary from customers in the near future. This approach importantly ensures that any new hires will work on things that matter and accrete value to your business.

Customers and sales cycles might be overlooked for cash and liquidity concerns. As previously stated, perception can manifest itself into a recession. Monitor customer outlook and sentiment, emphasize ROI opportunities, and try to get large opportunities over-the-line in the next 6 months. Also know your competitors’ weaknesses and prep your sales team to take share should any get in a cash bind or start to be stretched on product development.

I would suggest speaking with your investors who know your business well, have certain opinions on the current economic climate, and can help determine the appropriate strategy.

Originally from Issue 48 of the Dynamo Dispatch.

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