The monetary policy has loosened amidst the pandemic where rational measures were taken to stimulate economic activities and resulted in cheap funding costs and record valuation levels for the past two years. However, as a consequence to this, we now face record inflation levels where the Fed has to increase interest rates, resulting in the higher cost of funding for investors and lesser capital for entrepreneurs.
Red flags such as the falling stock market and rising interest rates as well as the cooling of venture capital markets all point towards the looming economic winter. The valuation swings in the financial markets reflect the uncertainties of the demand, supply chains, changing labor market conditions and supply chains and also The Russia-Ukraine conflict. These are the factors that are affecting businesses tremendously. Y Combinator, Silicon Valley’s startup accelerator which has been involved in launching over 3000 companies like Airbnb and Reddit, urged startups to “cut costs and extend your runway”. Founders were advised to plan for the worst.
The reputable venture capital firm, Sequoia Capital, also shared an extensive presentation with its portfolio companies on how to best navigate through the upcoming global recession. They predict that market recovery this time will take longer with an unclear duration. Sequoia Capital shared that during this period of survival mode, the ability for companies to adapt promptly is crucial towards their longevity. Cut costs wherever you can on unnecessary expenses, preferably within the next 30 days, to have capital reserve. As a founder, having focus, recognizing opportunities and making smart choices will allow your company not necessarily to just stay afloat but emerge stronger, if you play your cards right.
From Endevor’s Thought Inspire Series, Eric Cheng, Group CEO of Carsome, Malaysia’s First Tech Unicorn touched on Carsome finding the silver lining during the pandemic, using this time to plan ahead, testing out different scenarios and strategies moving forward. This preparation allowed themselves to execute when the lockdown was lifted, which led Carsome to outgrow everyone within the market today. Highlighting the point that with constraints comes creativity. When companies have limited resources, founders can channel more focus on finding better solutions.
So how do founders prepare themselves to not just brace but brave the winter storm? Sequoia Capital shared three aspects of preparation - mind, team and company. Founders are advised to confront reality, to choose courage over fear. Look for opportunities amidst the crisis. Revisiting the company's purpose and values is an important step towards alignment with the team. At times like this, CEOs need to play their leadership role in reminding their customers, employees and investors why they should still be a part of the company’s missionary vision, leading by having a clear direction and decisive action. Last but certainly not least, ensure the company has enough cash and cash flow by pivoting, focusing to earn more from customers, cut costs and excess and focus on future investments that can leverage the company in the long-run.
1. “Adapting to Endure.” Sequoia Capital, 16 May. 2022, https://www.sequoiacap.com/article/adapting-to-endure/.
2. Kruman, Yuri. “Winter is coming: 8 steps to recession-proof your HR.” Fast Company Executive Blog, 14 June. 2022, www.fastcompany.com/90759074/winter-is-coming-8-steps-to-recession-proof-your-hr/.
3. Marks, Howard. “Winter Is Coming: Is Your Startup’s Funding Secure?” Medium, 18 May. 2016, www.medium.com/raising-the-entrepreneurial-boom/winter-is-coming-is-your-startups-funding-secure-24bdf165e0ce/.
4. “Revolutionizing The Online Used-Car Platform One Market At A Time With Carsome.” Endeavor Malaysia, 2 June. 2022, www.endeavormalaysia.org/post/revolutionizing-the-online-used-car-platform-one-market-at-a-time-with-eric-cheng/.
5. Dilipkumar, Bhavya. “Plan for the worst, cut costs, extend your runway within 30 days: Y Combinator tells founders.” ETTech, 19 May. 2022, https://economictimes.indiatimes.com/tech/startups/plan-for-the-worst-cut-costs-extend-your-runway-within-30-days-y-combinator-tells-founders/articleshow/91668992.cms/.
6. Paul, Shutapa. “Startup winter.” Millennium Post, 27 May. 2022, www.millenniumpost.in/opinion/startup-winter-479886?infinitescroll=1/.