Building a Recession-Proof Startup

By Richard Liu

The road to growth starts with resiliency

Covid-19 has been wreaking havoc on the startup ecosystem for the last few months. With more than 3.85 million cases worldwide at the time of writing, we have seen its devastating effects not only on our healthcare system but also to economies around the world. 

As startups, we’ve seen struggles from having to let go of staff to having to close up shop altogether. There is a general opinion that recessions are bad for startups, and launching one in a time of uncertainty may not be the best idea. But this may not always be the case. 

Many startups were founded during the lows

It is important to remember that during the last recession, or the global financial crisis of 2007 to 2009, many startups successfully launched their products and expanded into some of the largest tech companies today. This group includes sharing economy platforms like Airbnb and Uber, and software and hardware products like Nutanix and Beats (later acquired by Apple). 

These startups capitalized on the downturn, looked for market opportunities, and built a great product, which allowed them to scale quickly once the market bounced back. In 2008, Airbnb took advantage of people’s willingness to risk renting out their homes–often simply because they needed money. Similarly, unemployed individuals or those looking for a side-hustle were open to becoming Uber drivers. 

Building resiliency 

“If we’ve learned one thing from funding so many startups, it’s that they succeed or fail based on the qualities of the founders.”—Paul Graham

Y Combinator Co-founder Paul Graham also echoes the idea that it’s a good time to launch a startup when the economy isn’t faring well because certain opportunities may not exist during an up-trending market. More importantly, he believes a founder’s resiliency is a stronger determinant to startup success than economic conditions. It’s crucial to remember that even if a market crashes, it will always bounce back. Therefore, resiliency gives startups the chance to ride the wave out of a recession. 

Capitalize on opportunities 

In its initial stages, a startup should be bootstrapping. Keeping steady cash flows is one of the first steps to ensure survival during the down-trending markets. Beyond this consideration, the key is to capitalize on new opportunities.  

Firstly, there is much less competition during a recession. You’ll not only encounter less early-stage competition, but the competitors that do exist are also in a precarious situation. Consequently, marketing costs would also be lower due to decreased demand, as everyone scrambles to reduce costs. With a lower initial cost of acquisition than usual, it’ll be easier to reach your audience and gain that initial group of customers (without unethical practices such as price gouging, of course). 

It’s also important to note that funding can still be obtained during a downturn. Although deal sizes may be smaller, it’s still possible to find the right investor. Angel and seed investors want to rally behind a mission. Although having good cash flow would be advantageous, ultimately, it’s the vision that sells early-stage startups to these investors. 

There is no doubt that many startups will fall during a recession. But resiliency will put the surviving startups in a position to thrive when the market swings up, as the business model would’ve been proven despite the immense challenges. 

About the Author

Richard is the co-founder of Yought, an AI-driven survey tool. The goal is to help users collect better data by designing and creating smarter surveys. He also runs a tech community and Youtube channel called TechChats, which discusses marketing and tech.  

yought.com

Photo by cottonbro from Pexels

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