The year 2022 was hard for start-ups, but we’ve survived it. But, it looks as if bleaker times are coming for tech startups in the year to come. For the UK and Europe in particular.
Venture capitalists and investors see this winter as the calm before the storm, before startups start to feel headwinds in the next 12-24 months. This will be true for innovators in technology, particularly for companies in an interest-rate-sensitive verticals.
Given the threat of looming recessions across the world, 2023 will be brutal for many. Fast-rising interest rates and fast-declining tech valuations will contribute to more mass layoffs and crypto bankruptcies. Next year, though, could be even more brutal. Money-losing companies that need to raise capital may find themselves running out of options; the pressure to sell may get more intense.
A signal of how bad things could get, at least for private tech firms, came on Monday with our report about a venture investor telling startups to prepare for “deep cuts” and to assume they won’t be able to raise new money until 2024. To survive the next few months, investors advise start-up founders to focus on the following:
Investors advise focusing on cash flow, not profits. Studies have found that poor cash flow is responsible for around 80-90% of business failures. So, if you want your startup to survive the tough times ahead, make sure you are keeping a close eye on your cash flow and doing everything you can to keep it healthy.
This is particularly important in times of economic uncertainty when businesses have a tendency to tighten their purse strings. As such, it’s vital that you focus on generating positive cash flow from your startup, rather than simply aiming for profitability.
There are a number of ways to achieve this, such as by invoicing promptly, seeking out short-term funding, and keeping a close eye on your outgoings. By ensuring that cash is always coming in, your startup will be more agile and better equipped to deal with any turbulence that might come its way.
Whether your startup operates in the B2B or B2C space, enhancing the customer experience should be a top priority. In today’s hyper-competitive marketplace, customers have more choices than ever before, which is why it’s so important to go the extra mile to ensure that they have a positive experience with your brand.
In order to keep in competition with the very best, you’re going to need to have the right tools and technologies in place to deliver an exceptional customer experience. This might include a CRM system to manage your customer data, live chat software to provide instant customer support, or an AI-powered chatbot to take care of the more mundane tasks.
Whatever route you decide to go down, the significant point is that you focus on enhancing the customer experience at every touchpoint. After all, it’s the satisfied customers that will keep your startup afloat in the years to come.
With huge companies like Amazon, Meta, Twitter and Alphabet have all announced big layoffs in recent months — along with hundreds of smaller startups. This kind of news strikes a slightly different tone from in the past.
So, it will be important that founders personalise the communication to the extent that you can. Treat people well, communicate why you’re doing this.
While layoffs are happening around the world, startups also have to contend with the interlinked cost of living and energy crises.
Inflationary pressures can be attributed to soaring fuel and energy bills — as well as global supply chain challenges. High oil prices have historically been linked to economic recessions. Eurostat data suggests that energy inflation in the Eurozone is up 41.9% year-on-year as of June 2022. Many SMEs believe that the cost of their energy bill will negatively affect business growth moving forward.
The silver lining is that green energy is becoming increasingly attractive. To survive the cost of living crisis, founders should invest in green energy alternatives and resources - to reduce the burden on their delivery and employees.
