How to Launch a Startup in the Post-Covid Era
Harvard Business Review by Uri Adoni
July 6, 2020
Economic downturns, although challenging, can provide an opportunity for launching new companies and products.
Raising capital for a startup during a recession can be difficult. If your goal is to fundraise within the next year, start by asking yourself if your product or business is still relevant in the current environment.
Do your research — figure out if potential investors are adventurous or conservative, and be transparent with them about your company and the challenges you may be facing.
Rely on a board of advisors with experience in running startups to provide guidance.
Manage cash cautiously and set your organization up for survival. But have a plan ready for post-crisis growth.
A look back at history shows us that crises are opportune moments for new ideas, innovations, and systems. Some of the most famous companies today were launched right after the 2008 economic crisis: WhatsApp, Uber, Slack, AirBnb, and Groupon, etc. are a few noteworthy examples.
This economic crisis due to the coronavirus pandemic can feel challenging and terrifying, but the current environment can be an ambitious time for young entrepreneurs to launch the startup of their dreams. Pitching an idea and raising capital for your startup may be harder than before, but understanding the market and the needs of the consumer (as well as your own adaptability during a crisis) can help you stay in the game.
Here are several practical tips for both existing startups and new startups that are planning to fundraise in the next six to 12 months.
Be brutally honest — what makes sense now? Ask yourself: Have the recent global events changed the relevancy of my product and proposition? Does my idea still answer the same needs as before? Does the offering need to be updated based on the new reality? Are there any changes or adaptations to be made on the product, offering, technology, pricing, distribution channels, or the geographies I’m targeting?
Answer these questions honestly. A crisis will likely decrease certain market needs and increase others. Make adjustments to meet the new market needs and conditions. For example, Athena Security makes software that allows security cameras to detect firearms in real-time. Now, with Covid-19, they are selling systems that use thermal cameras to detect a person with a fever in real-time. Room, a startup that makes phone booths as a quiet refuge in open-plan offices, is now making coronavirus-testing booths for healthcare clinics.
Understand how the needs of the market and the consumer have changed, and innovate your startup or new idea. Think about how you want to be relevant NOW.
Understand the mindset of the investors you meet. Generally, there are investors who are more conservative, and in times of a crisis they tend to hold their cash and pause their investments, while others are more adventurous and look for great opportunities with lower valuations. Try to assess which of the two is the potential investor you’re meeting. If the meeting is with a venture capital, you should find out when the fund was launched to determine where they are on their cash deployments. For younger funds that are only one or two years old, they will be actively looking to invest, and the crisis could be a great time to invest because the valuations of most companies will drop. However, many of those funds will also want to mitigate the risk by investing in more mature companies that have a clear path to profitability. As you will do on normal days, you should also make sure that the VC you are meeting has an interest in the space you are active in and has made an investment in this vertical before.
Think like a camel, not like a unicorn. Camels are built for survival in some of the toughest climates on earth. They are resilient and can survive for many weeks without food or water, still running fast when needed. On the other hand, the mythical unicorns in the business world are focused on rapid growth through deep funding and an accessible talent pool.
A crisis is a time for demonstrating camel behavior. The vast majority of startups have an ambitious vision, with big plans and large numbers. This is fine and shouldn’t be changed. But during a crisis, everyone is cash-sensitive, and you should be too. Be cash flow-sensitive, have a lean organization, create a realistic and conservative operational budget, and make sure you don’t deviate from it. Possible investors will want to see that you manage your cash cautiously and wisely, don’t make any long-term financial commitments, and know-how to cut expenses when needed.
Be open and transparent with your investors. Make sure investors are fully aware of your company’s situation, changes that occurred in the market you are operating in, challenges you are facing, updated projections for revenues, and a list of realistic needs for short-term and future funding.
Explain how you have addressed the challenges — this could give them important insight into how you function when times get tough and the decision-making process within the company. Don’t sugarcoat things. Treat your investors as part of your team.
Build a strong advisory board. This is true to any startup at any time, but during crisis times, this is of utmost importance. Having experienced people who can assist you in running and growing your venture will also give more confidence to investors. They will know that even if you are a first-time entrepreneur, you have veteran businesspeople to guide and assist you when needed. In addition, this advisory board can use their own networks to make introductions and open relevant doors at times when opportunities are scanty.
Be ready for post-crisis growth. Ensure that you have a full operational plan ready for the day after when things get back to normal. Make sure the business plan reflects how you’ll adapt when the skies clear up and grow your business.
About the author: Uri Adoni is author of The Unstoppable Startup: Mastering Israel’s Secret Rules of Chutzpah (HarperCollins Leadership, Sept. 8 2020). He is an angel investor and venture capitalist with over 20 years of experience in the high-tech sector. He spent 12 years as a partner at Jerusalem Venture Partners Media Labs, which has listed twelve companies on NASDAQ and sold numerous others to leading tech companies such as Cisco, Microsoft, EMC, PayPal and Sony.
Perhaps you are not in front of investors yet. Perhaps instead of investors - you are at the early stages where you have partners or associates who can fill your gap areas. At LPF, we have engaged partners to the fullest extent to ensure low risk and a collaborative approach to our startups that produced sustainable results in the long-term. Contact LPF today, we can help shape your ideas into something tangible and successful.
Direct link to article: https://hbr.org/2020/07/how-to-launch-a-startup-in-the-post-covid-era