How to Help Your Startup Survive During Tough Economic Times

How do startups survive when times get tough? When the going gets tough, startups act to survive. They adapt. Startups that don’t act — that don’t adapt — often don’t survive.

Sitting back and doing nothing does nothing to help your startup. However, there are numerous things you can do to help your startup. In fact, businesses today have a wide array of tools at their disposal to help them survive the unpredictable ups and downs of the economy.

Here are our tips on helping your startup survive tough economic times:

One of the first things you need to do is make sure that you stay calm and focused. On top of all of the other challenges that startups face, downturns in your business can be extremely stressful. However, it is important to manage your stress, although this is often easier said than done.

 One of the best ways to remain calm and focused is to be prepared. Being prepared may mean staying on top of your finances, raising capital, and paying attention to the market. It could also mean working on building and expanding your startup network, getting a mentor or advisor, and building your core competencies. The important thing is to think through the various scenarios your startup could face during tough times and be prepared to adapt and respond.

You also need to make sure to take care of yourself. Make sure you are getting enough sleep, eating right, getting plenty of exercise, and taking time to rest and for yourself. If you aren’t functioning at 100%, your startup isn’t going to function at 100%.

Another thing you should do when you see tough economic times ahead is to understand and evaluate your startup’s financial situation. 

First, you will need to understand your startup’s financial statements like the income statement, cash flow statement, and balance sheet. Hopefully, you already have a pretty good understanding of your startup’s finances, but if not, you will need to take the time to understand your company’s revenues, expenses, cash flow, and burn rate.

 Your goal is to protect your cash flow. Unfortunately, tough economic times, whether in the economy overall, your industry, your market, or just your startup, lead to less cash flow and slimmer profit margins. So, you must understand and evaluate your finances to make sure that you have enough cash on hand. 

Project your sales in worst-case, expected, and best-case scenarios, and calculate your cash on hand and how long that will sustain your startup under each scenario. Also, be conservative when estimating how much cash you will need to survive. It is easy to underestimate how much revenue will fall or how long a recession will last.

It is also best to review your budget and finances every month to stay fully aware of your finances. You can’t make sound decisions without a firm understanding of your financial situation.

One way to protect your cash flow is to analyze and trim your spending. It is a good idea to stay on top of your spending in good and bad economic times, and this becomes especially important for cash-strapped startups and small businesses.

When times are tough, you will want to keep your startup’s expenses as low as possible.

You should first consider cutting any unnecessary spending. What are the nonessential expenses that you can cut? These are things that are nice to have, but eliminating them won’t necessarily change the value that you provide to your customers. Are there any memberships, services, subscriptions, or other expenses that you can live without for a while?

You may also be able to cut expenses for all of those expenses that are necessary. You may be able to find lower prices for the things you do need; renegotiate agreements with your current vendors; downgrade services, subscriptions, and plans; or even ask for discounts for immediate or cash payments.

You can also try to negotiate with your lenders during tough economic times. They may be willing to temporarily decrease or pause your payments, lower the interest rate, or refinance your debt during rough times.

Another thing you can do to help your startup survive tough times is to raise your prices. Although raising prices during a recession may seem counterintuitive, it is sometimes necessary to combat inflation. 

Make sure you don't alienate customers by raising your prices dramatically across the board. Rather, raise prices gradually and only on the products and services that you need to.

You should also work to justify your price increases. Remind your customers of the value that you provide, and stay attentive to their needs and how you can add more value to their lives.

If analyzing your finances reveals that your startup is not in the financial state to weather tough economic times, one thing you can do to be prepared is to raise capital. Raising funds will likely take longer than you anticipate, so it is important to stay on top of your finances and be prepared. If you don’t have the capital to keep your startup afloat during tough times, it won’t survive. 

There are many ways that startups and early-stage businesses raise capital. If you already have angel capital or VC investors, you will want to start by talking to them. They are already invested in your project, and if you show them that you have a plan to survive and succeed through tough times, they may be willing to invest more capital into your startup.

You can also attempt to raise funds from new investors. For many startup founders, fundraising never stops. Just because the economy is slowing doesn’t mean investors aren’t looking for opportunities.

Other options for startups to raise capital are grants, loans, lines of credit, and business credit cards. Access to cash might make the difference between failing and hanging on long enough to thrive. 

One thing you can do to be prepared is to build your business credit. Developing business credit involves establishing your company's ability to raise funds, being listed with business credit bureaus like Dun & Bradstreet, and collaborating with companies that help build business credit. 

Building and maintaining a good business credit score signals to lenders, credit issuers, and vendors that your business has a history of and can pay back its debts.

You need to have a good understanding of what is going on in your industry and market in order to navigate your startup through tough economic times. Don’t jump to conclusions. And, do not let your own anxiety or fears cloud your judgment and only deal with facts when dealing with a situation, no matter what is going through your mind. 

First, you will want to remain aware of what is going on in the economy at large as well as in your industry or segment. Pay attention to recent innovations and trends and the challenges other startups in the industry are currently facing.

You should also be aware of what is going on in your market? How have tough times affected your customers? When you understand what is going on in the market, it becomes much simpler to determine the opportunities (or lack thereof) that are currently available, design your products and services to meet your customer’s current needs, and plan more effective sales and marketing strategies in order to reach those most likely to buy from you.

You should also be paying attention to what your competitors are doing. You should take a closer look at how your competitors are attracting new customers, their target markets, their marketing strategies, their strengths and weaknesses, and their business strategies. How are they positioning their products? How are they adapting? What are they doing differently? What can you do to gain a competitive advantage and grow your startup?

Another important part of leading your startup through hard times is rallying your team. Tough times are usually not a secret. Your employees will read about and know about downturns in the economy, industry, and customers and revenue. The best thing to do is to talk to your team, bring them together, and reassure them—and the best way to do that is to let them know that you are prepared.

You can pave the way forward by having an honest conversation. Give your team a chance to express their ideas, talk about challenges, and even offer tentative solutions. Not only will you be able to gather your employees' perspectives and potential solutions, with everyone on the same page and rallied around a goal, but you may also even be surprised at what your team can come up with and accomplish.

And just as importantly, maintain a positive attitude. If you act like all hope is lost, your employees will surely pick up on that. On the other hand, if you remain passionate and energetic, your employees are much more likely to remain motivated and engaged.

If you are going to rally your startup team, you are going to have to trust your team and delegate important tasks to them. As a startup founder, your focus should be on building and growing your business. If you find yourself completing mid-level tasks, you need to hand those tasks off to your team and focus on the things you can do to grow your business.

Some founders have a very difficult time delegating tasks. Founders often have a very clear vision of what their startup will look like and how things should be done. However, when you take on too many responsibilities, you don’t have as much time or focus to put into the areas of your business that need your attention the most.

You should aim to delegate all of the tasks that eat up your time but produce little financial return or don’t have a big positive impact on your business.

Building and growing your startup’s network should be one of the first things you should do in launching a startup. Your startup’s network is your network of other founders, entrepreneurs, advisors, mentors, and other members of your local startup community that startup founders and cofounders can turn to for advice. 

Your startup’s network is an invaluable source of information, guidance, and connections to other networks.

When economic times get tough, you may face new challenges daily. You won't know all the answers, so you'll probably need the advice of those who have gone through it before. It is important to have the right network in place to reach out to when you need help.

Your local startup community is one place to broaden your network of business contacts. There are many places where the entrepreneurial ecosystem is thriving, and there are often even chances to network right in your neighborhood. 

Local SCORE mentor programs are another resource that many business owners use for advice. SCORE is a nationwide network of more than 10,000 professional business mentors who offer free mentoring to startups and small business owners.

Recommended: Check out TRUiC’s page on local resources to find out more about resources near you.

When there is a downturn in the economy, it’s not just you that feels it; many of your customers often feel it too. Keep in contact with your customers, find out their major issues and problems, how they are holding up, and be honest with them about how your business is doing as well. More importantly, find out what they need from you.

As you probably know, it costs more to acquire a new customer than it does to maintain an existing customer. During tough economic times, this can be even more true. As people cut down on their spending, it can be even more difficult to convince a new customer to buy from you.

More than ever, you will want to maintain a strong bond with your existing clients. In fact, now is the perfect time to start building stronger relationships with your clients. Show them that you not only value their business but that you also genuinely care. The bonds that you build during difficult times can convert occasional customers into lifelong, loyal customers. 

And, don’t cut back on the value that you provide — just the opposite. You should be thinking of ways that you can provide more value for your customers.

Another thing you can do is to reach out to your old customers. A recession or slow times is the perfect time to re-engage with old customers during a recession. You may have something new to offer them. Or you can ask if they are happy with their current provider, are just open to re-visiting their alternatives, or what it would take to win back their business.

Tough economic times are the perfect time to take a mental step back and rethink your business. Rethinking your business also means that you need to reevaluate your business model, operations, products and service offerings, and pricing. What has and hasn’t been working?

You may need to evaluate which areas of your business are profitable and which are not. When a downturn happens, focus on your strongest or most promising products or services (i.e., those that perform the best).

You also need to consider what things will be like after the tough economic times. How will the market respond? Will consumer needs change? As a good example, the coronavirus pandemic has made companies and consumers alike rethink the way they go about their daily lives, resulting in many industries undergoing drastic change.

Another way that you can prepare for and get through tough times is to diversify your revenue. Diversifying your revenue streams simply means looking for ways to generate multiple streams of revenue, whether that be through new product and service offerings, new distribution methods, new customer segments, or new markets.

While you don’t want to spread yourself too thin and neglect your core products and services, there may still be many ways to diversify your revenue streams. For example, you might think about introducing budget or premium versions of the products or services you already offer or a subscription plan to secure recurring revenue.

You might also try reaching additional customer segments or expanding into new markets, preferable to more recession-resistant segments, such as larger companies and higher-income populations. The more revenue streams you have, the more options you will have and the better prepared you will be when your startup faces tough times.

Another thing you can do during hard times is to update your marketing strategy. In fact, you should be revisiting your marketing strategy regularly. As the economy fluctuates, consumers’ needs and preferences change, and your marketing and messaging need to change along with them. 

One mistake that many startups make is to slash marketing or cut it completely during tough times. However, while you may need to trim your marketing costs accordingly, you still need to be investing in marketing. Your customers (and potential customers) need to know that you are open for business. 

Instead, you should be focusing even more on your marketing efforts. Specifically, is your marketing working? Does your marketing reach your target customers? Is the messaging resonating? What is working and what isn’t? Now is the best time to really look at your marketing and invest your resources in what works.

There are also many effective, low-cost marketing methods that you can try. For example, social media and content marketing can be low-cost yet effective marketing methods. If you know where to find your customers online and how to engage their attention, social media and content marketing can both be highly effective. 

Now is also a good time to update your website, which is usually a key touch point with your customers. Your messaging should be consistent across your marketing, website, and brand. And you should optimize your website for SEO. You want your website and content to appear early in the search results so that you reach a larger potential audience and convert more prospects and customers.

Email marketing is still a popular form of marketing that is low-cost and effective. Print marketing such as brochures, flyers, and business cards is also relatively low-cost and can be effective.

There may come a time when you have to "rightsize" (or downsize) your team in order to help your startup survive a recession. This should usually be a last resort, but if you have exhausted all of your other options, you may need to consider reducing hours or downsizing your staff to deal with revenue and capital shortfalls.

Laying off a team member can be a difficult decision, but if it comes down to laying off a portion of your employees or the whole company, it may be one you need to make. If you need to downsize your staff, you need to be prepared. And, returning to an earlier tip, be honest with your team.

Launching and growing a startup can be a challenge, even during an economic boom. But, that doesn’t mean that you cannot survive tough economic times. Many startups have emerged from tough times stronger and more adaptable than ever. By following these tips, you can better be prepared for and help your startup navigate hard times.