Can startups succeed in a recession?

This article originally appeared in issue 30 of IT Pro 20/20, available here. To sign up to receive each new issue in your inbox, click here

The range of challenges faced by startups is broad, and many factors need to be under control if success is to be achieved. Times of economic downturn can make what is already a tough situation even tougher, with the UK set to undergo an incredibly turbulent few months. The uncertainty, however, can bring positives for startup founders willing to seize the day and get going with their grand idea. It helps, though, to be aware of the particular focus that an economic downturn can require.

Chief among all factors is knowing whether your offer is needed in the market, and if it fills an identified gap. “Having a market advantage when the market is struggling is even more key to your business being successful,” Jordan Dargue, board director at NorthInvest, tells IT Pro. “You need to know what your competitors are doing and what their strategies are.”

There’s a litany of other factors that potential startups and new businesses should be aware of when considering whether to launch their venture during tough economic circumstances – including retaining focus on the ultimate goal and a willingness to take on uncertainty.

Being laser focused is more important than ever

It goes without saying that startups always need to have strong focus, drive and commitment if they’re to succeed. At a time when the economic outlook is uncertain, these factors are even more important. While a strong business plan is essential, investors may also be interested in the team itself, its vision, and the potential. As Drague says, “investors are investors for a reason”.

“They take great pleasure and satisfaction from supporting businesses and supporting the overall economy,” he continues, adding: “An investor will often guide a company on what it should prepare in order to gain investment.”

Still, it’s really important that a startup can talk knowledgeably about its unique selling points, and for Henrik Landgren, chief product technology officer and co-founder of ArK Kapital, and former VP of analytics at Spotify, that means paying attention to data. “You need to get on top of your data,” he tells IT Pro.

“In downturns all soft factors go out the window and eyes are fixated on the data. This applies to how you run your operations all the way down to how you craft your pitch decks. My advice for the latter would be to dial down on the storytelling parts and dial up on the data story.”

Key success factors are critical

Startups always need to understand the market they are entering into, and this means having a strong focus on customers from the outset. Isabelle O’Keeffe, partner at VC firm Sure Valley Ventures tells IT Pro it’s even more important in the current climate, saying: “Founders should be speaking to prospective customers on a regular basis and researching how certain factors are impacting their supply chains, purchasing decisions, business models and revenue generation.” Doing this, she adds, empowers the startup to “figure out ways to adapt their product or sales approach to the customer and could be the difference between getting those first few customers or getting none”.

Support, whether that’s financial, paid consultancy or help from knowledgeable networks is absolutely key, and even in times when money is flowing freely it will help entrepreneurs keep focused on what matters. When funds are tight, getting the right help at the right time is vital and it is good to be prepared. As Jordan Drague says: “Make sure you already have an adviser who can provide you with the best advice as and when you need it.”

Vitally, when money is tight, there’s more imperative than ever to “fail fast”. Henrik Landgren puts it succinctly: “The best entrepreneurs are agile and equipped to take on uncertainty. They’re the ones that raise their sails in the storm and make it out.”

While startups need to juggle business planning, getting the right technology in place, financial management and planning, and, unless they are very new, actually delivering a service, they should never forget the importance of looking after their team. Isabelle O’Keeffe concludes: “In this environment, it’s become harder to attract exceptional talent and, when building a team, it’s important that you’re transparent and open with your current team, and that you take them on the journey with you.”

Five guiding principles for startups at times of financial challenge

• Be sure you fill a gap in the market and shout about that.
• Know where support lies, and tap into it whenever needed.
• Talk to your customers. Knowing where their pain points are will help you to help them.
• Focus on the data to help make a strong case to investors.
• Take care of your team. In times of economic difficulty good talent can be harder than usual to recruit and retain.