StartupTalky

Tag: Sanjay Sehgal

  • Impact of Economic Slowdown on Startup and How to Survive

    This article has been contributed by Sanjay Sehgal, Founder, Chairman and CEO, MSys Technologies.

    An economic slowdown can impact startups and businesses negatively. But it can also present some unique opportunities that can make a startup survive and thrive during a crisis.

    For any business, “recession” is the most feared word. By definition, a recession is two consecutive quarters of negative economic growth. There can be multiple reasons for this decline. However, the result for a business is almost the same. The economic slowdown is inevitable. However, this does not mean that navigating through the changed consumer behavior and uncertainty in the labor market will be easy. 

    However, if a business is strategizing beforehand and focusing on long-term goals, it will help it adapt to the changing environment of the market. A business might even emerge stronger and more resilient after weathering the recession. 

    What is an Economic Slowdown?

    A recession or an economic downturn is a period of slow economic growth, which includes declined GDP, a low growth rate in the job market, declining global demand, reduced credit availability, and increased cost of borrowing. The effect of recession is notable on both businesses and individuals, creating financial bubbles and often having negative effects on society at large. The looming fear of unemployment and hoarding habits, to name a few.

    The Most Common Causes of an Economic Slowdown

    There can be various factors, even a combination of multiple factors, that can result in a recession in a country or a region for a specific period. 

    • While high interest rates can help manage inflation, this can result in declining borrowing rates for both businesses and individuals, which results in reduced investment and spending. 
    • Financial bubbles created by rising stock prices, real estate, and commodity prices can evaporate with time. This can cause a sharp contraction in the economy.
    • A financial crisis in the country can lead to a recession, which can have a direct effect on businesses, big or small. 
    • Natural disasters or pandemics are unforeseeable circumstances that can lead to economic slowdown. The recent COVID pandemic has caused the door to close for many small businesses and startups. 

    Direct Effects of Recession on Startups

    Economic slowdown can translate into risk increases, reduced cash flow, and many other obstacles for businesses, especially startups. According to the reports of TICE, India’s startup news streaming OTT platform, 50%–70% of startups, backed by venture capitalists, had to stop operations in 2023. In fact, this platform says that the first quarter of 2024 is worse than 2023 in terms of companies closing doors due to the economic slowdown. 

    • For a startup, getting the funding is crucial. During a recession, this can be severely affected. Venture capitalists might reduce their funding, which will directly affect startups.
    • Raising funds from other sources can be difficult too. For seed funding or bootstrapping, the recession is not a good time to make a crucial financial decision.
    • Owing to the decreased cash flow, startups might have difficulty managing their operations, manufacturing processes, and delivery. 
    • While the recession affects business and investment, it also changes individual consumer behavior effectively, resulting in reduced leads and sales. 
    • Businesses might experience longer exits during an economic crisis.

    However, it is not all this bleak. There can be some opportunities too for startups during a recession. 

    • Due to the economic slowdown, the otherwise cutthroat market becomes less competitive. With proactive planning, startups can get an edge in this situation. 
    • Owing to the reduced demands, startups can get better deals from their vendors, which will help them save more while running the operations and manufacturing.
    • To keep up with the changed consumer purchasing behavior, startups can offer attractive deals, which will get them more business and sales. 

    What are the 5 Main Causes of Inflation?
    Inflation can make or break a country’s economy. But, what causes inflation? Read this article to find the causes and consequences of Inflation.
    StartupTalkyHarshit Baluja

    Strategies to Survive an Economic Slow Down and Grow Faster

    When it comes to the economic slowdown, having proactive strategies can help businesses in many ways. While survival becomes the priority during such times, the goal should be not only to survive but also to thrive. 

    Preparing a Financial Plan for Crisis

    Proactiveness requires a firm to prepare the company to handle the shock and downside of any crisis. So, to manage the effects of the recession, a startup must have a financial plan. This will help the business to thrive even during the economic slowdown. The steps for this should include:

    1. Complete evaluation of the monthly spending 
    2. Ensuring that the business has an emergency fund for such situations
    3. Active and regular analysis of the cash flow and investment
    4. Developing an alternate revenue plan for this situation 
    5. Regular debt clearance, especially the highest ones

    Reduction and Cost Efficiency

    Cost efficiency is not just about reducing costs but also optimizing the resources that are available to achieve the best results in any given situation. Cost efficiency will help the business preserve cash, maintain a regular chain of profitability, and finally keep the operations uninterrupted.

    Leveraging technology can help a business reduce the cost of wages and benefits of resources. In this way, operations can be streamlined and human resources can be used to perform high-value tasks. While core competencies can be managed by the business itself, some work that does not require the core competencies can be outsourced.

    Innovation and Diversification

    Innovation is key to helping a business adapt to adverse market conditions, find a competitive edge, and deliver to the ever-evolving expectations of the customers. While startups often focus on only one business model, innovation can help bring in more products and services that can generate a steady revenue flow for the business. For example, during the recession in 2001, Apple moved forward and launched iPods instead of scaling back, which resulted in massive success and helped the brand build more recognition and customer loyalty.

    Diversifying the products and services will help a business weather the storm of an economic slowdown. New strategies, a broader scope for products, and more revenue will help the company keep afloat. In 2008, Netflix transformed itself from a DVD rental service to a streaming service that catered to the changing demands of the customers, effectively making the brand a market leader in online streaming.

    Focus on Customers

    Most importantly, for any business, the focus should be on the customers and their demands. The aforementioned brands could become pioneers as they anticipated the needs of the potential customers and catered to them at the right time. This requires constant market research, understanding the changing buyers’ persona, having clarity of the problem that your customers are facing, and creativity to solve that problem. No matter what a business does, the customer is always God. 

    To wrap it up, every storm comes with a silver lining. Even in the middle of an economic downturn, brands have proved their mettle by finding opportunities for growth that helped them rise even during financially unstable times. Hence, constant innovation is the way to go. The focus should be to come out on the other side of the storm as much stronger and bigger.

    What Is Recession and What Are Its Types?
    The main reasons behind a recession could be a financial crisis, an external trade shock, an adverse supply shock, an economic bubble burst, or even a large-scale natural disaster.
    StartupTalkyKinnary Nensee

  • How to Scale Early Stage Startups From 0 to 1 With Limited Funds

    This article has been contributed by Sanjay Sehgal, Founder, Chairman, and CEO, MSys Technologies.

    Your dream of launching a startup is not a dream anymore. You have successfully launched your business, developed it, and chalked out the next plan. But how about scaling up your business? Every year, hundreds of startups open their doors, but only a small percentage of them survive globally. Only one in 200 of them can successfully scale up their business. While 74% of startups fail because of premature scaling, the rest do not know when to scale, and they end up being small companies that eventually get shut down or go through a fire sale to another company.

    Starting a business is not enough. Understanding when your business is ready for scale-up and how that will happen is quite crucial and is also heavily dependent on the availability of funds.

    The Difference Between Growing a Startup and Scaling a Startup
    When to Think About Scaling Up Your Business?
    How to Scale Up Your Startup

    The Difference Between Growing a Startup and Scaling a Startup

    Startup growth is about having a consistent customer base and a steady flow of resources. The company has a larger influx of money, which results in more production and increased hiring. Finally, the company starts using a more refined marketing budget.

    But for startup scaling, it is different. In this case, the startup grows exponentially and makes more profit. However, the investment remains more or less the same. In this case, the business has already gone through the growth stage, and now it is ready to gain more customers and revenue without increasing expenses or needing more funds.

    Let’s understand this with an example. You started a company that used to cater to a small locality of 1,000 people. Now, you have ensured growth to service a part of the city that will comprise 50,000 people. But now, you have to scale up your business, as you will have to be prepared to serve 10 lakh people residing in the city and then eventually expand to other cities and, who knows, other parts of the world. All this could create overwhelming demand that will paralyze your business.

    When to Think About Scaling Up Your Business?

    The idea of scaling up is tempting. But at the same time, you have to keep in mind that premature scaling will leave you bankrupt. So, to understand when you can accelerate growth for your business, you have to have some checkpoints.

    A Reliable Customer Base

    Having a large, referencable customer base will help your business grow exponentially and generate more revenue. It proves that you are actually solving the real problems of customers, which will give you market stability. Also, there is another thing that you will have to keep in mind. Having a loyal customer base means that your customers will repeat their purchases, and they will also be your endorsers, generating more indirect sales for you. Make sure you have the employees and inventory to manage the demand.

    Achieving Previous Targets

    When you started your business, you surely had some goals in mind. So, now that you are considering scaling your business, have you achieved those goals? If you have achieved them, then great. But if you have not, then before you think of growth, find the pain point and reflect on what stopped you before.

    Positive Cash Flow

    There is a difference between business profitability and cash flow. While profits prove that your business ideas are viable and in demand, your cash flow is required to stay afloat. A positive cash flow means that you are making more money than you need to sustain your business. To achieve this, you can take an advance from the customers, speed up your invoice system, and accelerate the process of cash conversion.

    Valid Concept and Robust Infrastructure

    Before you focus on the active growth process, you need to make sure that every part of your business is working like a well-oiled machine. The concept that you started your business with, is it a valid one and working in the market? Can you upgrade it for some sales and profit? Is the internal business structure adequate to support scaling? Ask yourself these questions to understand if this is the right time to scale.

    Analyse scenarios to Minimize Risks

    Scaling up your business will be risky. You will face many challenges. But this does not mean you cannot deal with these risks. You can analyze the risks first under various scenarios and then minimize them with the help of effective strategies.

    How to Scale Up Your Startup

    Now that you have already recognized how prepared you are for scaling up your business, let’s find out how you can do that.

    Automate More

    For scaling up, saving resources, reducing errors, and getting real-time activities are necessary. Automation is the best way to ensure all of these. Using chatbots can help you provide real-time customer support without much chance of error. On the other hand, automation can gather customer data and analyze it while taking care of payroll within the company. In fact, today, with the help of AI, you can reduce the necessity of using more resources for marketing too.

    Know the Expectations of Your Customer

    Unless you know what your customers expect from you, you won’t be able to manage them and cater to their needs. For that, you need to do the research. You need to use tools and resources to find out how your competitors are getting an edge in the market. For your MVP or the first batch of products, gather customer feedback and use that constructively to improvise.

    Invest in Technology

    Now that you know what your customers are looking for, it is time to invest in the right kind of technology. Use software systems that will help you increase production, increase efficiency, and reduce pain points. At the same time, ensuring the safety of the software systems is also a must. In this case, partnering with a SaaS company can be a good decision.

    Plan Effective Marketing

    How are people going to know about your product unless you make them see what you are offering? Hence, investing in marketing strategies is a must. From content marketing, SEO, PPC, and social media marketing to print and digital advertising, leave no stone unturned. Create the right brand persona and reinforce that with your strategies.

    Funding and Steady Revenue

    Yes, your goal is to scale your business while keeping the budget more or less the same. But let’s face it. When we are talking about a sustainable business model, having the right funding and a steady flow of revenue is important. Approach angel investors or VCs so that you can carry on and increase production, which will, in turn, bring you more revenue.

    Conclusion

    Now, while doing all of these, stay calm. Getting overwhelmed will result in making the wrong decisions or procrastinating. So, the go-to advice is to take a pause, reflect, and meditate. Get clarity on what you want to do with your business. Then tread forward.

    From Pre-seed to Late Stage Funding – Sources of Every Funding Stage
    As the business grows, it requires funding for expansions and research. There are different stages of funding that respond to the different needs of a growing business.
    StartupTalkyKinnary Nensee