Four Steps to Keep Your Startup on Track in the Midst of COVID-19
Richard Bartolanzo and Brian Hamm, Bennett Thrasher
Over the past eight months, business owners and leaders have had to make tough decisions in order to successfully adapt to the new normal of COVID-19. Technology startups in particular have been heavily impacted by the pandemic, and many early-stage companies are struggling to survive. According to CB Insights, 67 percent of startups stall at some point in the initial funding process and less than 48 percent of these companies managed to raise a second round of funding. With the odds stacked against most founders, long-term success seems like an insurmountable feat. The addition of an unforeseen global pandemic into the equation only seems to make the prognosis for success even more remote.
By considering the following recommendations and strategically adapting to fit the growing needs in the market, your business can stay on the right track to success, regardless of the challenges created by the pandemic.
Establish a Strong Business and Financial Plan from the Start
If there is one thing that we have all learned in 2020, it is to expect the unexpected. Having a strong business plan in place though will allow you to more easily navigate uncertain times. When establishing a financial plan and early projections, founders should, to the extent possible, also stay agile and maintain the ability to adapt as conditions present. It is especially important early on to carefully evaluate your revenue streams and any major expenses or anticipated costs.
Evaluating revenue channels and examining your customer base can go a long way in determining whether cash streams from these sources are sustainable. For example, if you develop and license inventory management applications to the food and beverage industry, it may be wise to rethink whether such an application can be developed and sold within an alternative industry that is not as adversely affected by pandemic-related restrictions.
Similarly, reviewing forecast expenditures and developing growth models that are scalable can be invaluable in pushing through rough economic conditions. For instance, it may be wise to adopt a more permanent work-from-home policy rather than committing to a long-term lease on an office space. Also reviewing workforce needs and using a more flexible contract labor base could be a safer use of funding than hiring a more permanent employee workforce.
Since the market is highly volatile, ensure you have a clear understanding of your capital flow with adequate projections. Whether you are seeking funding from venture capital, crowdfunding or other sources, understanding your financials will give you a better sense of your specific income goals. In order to attract the next level of investors for your business, it is important to present a solid financial position with proper assumptions and adequate analysis.
Reevaluate Whether Your Product is a “Must-Have” or Just “Good-to-Have”
Companies that fall within the realm of health technology, cloud communication and collaboration software are thriving right now, as the current market presents a much stronger demand for these types of services. More specifically, they are offering products that allow others to more easily deal with remote work, healthcare delivery and virtual collaboration, making them “must-haves” in the market.
With that in mind, ask yourself if your product falls into the “must-have” category or just the “good-to-have” category. At a time when executives are more conscious of budgets and cost-cutting opportunities, it’s ideal to deliver a product people consider essential.
While this may not apply to every product, this also presents an opportunity to thoughtfully pivot and alter your product line to strategically fill a void in niche areas – ultimately taking advantage of the current state of the market and the major needs from companies and individuals.
Identify Implications of Stalled Production
Many technology companies with a hardware component have experienced production delays, as COVID-19 forced many manufacturing operations around the world to come to a screeching halt. As a result, some founders are facing the challenge of identifying a new manufacturer.
A new manufacturing partner could be stationed in a different country than your previous partner, which may create new logistic, regulatory and tax issues that add unforeseen costs to the production process. Some of these unexpected costs may come in the form of increased financial burdens through the shifting and application of local tariffs for raw material supplies. Other costs may come in less obvious forms, such as lost customer confidence due to variable production schedules and quality control issues. Founders need to tread carefully as they look out for these potential problems and determine how they will impact their bottom line.
Keep One Eye on Your Product and the Other on the Ever-Changing Business Landscape
While the coronavirus pandemic has upended the business world and caused many startups to struggle to stay afloat, it’s essential that you reevaluate your business plan and adapt to the changing needs of the market. Ensuring your overall strategy and core competencies are flexible enough to evolve will be crucial to the continued growth and future success of your company, especially in the wake of COVID-19.
We’re Here to Help
Do you have questions about navigating the COVID-19 crisis or want more insight on how to establish a strong financial plan for your company? Bennett Thrasher’s Technology & Biosciences team is here to help. Our experienced professionals will brainstorm and develop a roadmap for your startup’s key financial reporting and tax structuring needs. These interactive sessions are complimentary and intended to help you achieve profitable growth while taking advantage of available financial incentives. To learn more, please contact Richard Bartolanzo or Brian Hamm by calling 770.396.2200.
Richard Bartolanzo is a Partner in Bennett Thrasher’s Tax practice. He has more than 30 years of experience providing U.S. and international tax advisory services. He currently co-leads the firm’s Technology & Bioscience and Insurance practices. Richard has worked with technology clients in all stages of their lifecycle and has an overarching goal of maximizing founder wealth.
Brian Hamm is a Partner in Bennett Thrasher’s Financial Reporting & Assurance practice and co-leader of the firm’s Technology & Bioscience practice. He has significant experience serving startups to large multinational public and private companies. Brian assists clients with due diligence engagements as well as supervising and consulting on review, audit and IRO engagements. His industry experience includes healthcare, hospitality, investment companies and technology.
Bennett Thrasher works with technology companies from early to mature stages in the business lifecycle. With our depth of experience, we are uniquely qualified to consult with start-ups, because we understand and can help you address the unique challenges you face as your start-up continues to grow.