4 Actions Startups Should Take Now to Combat Imminent Stagflation
Proactive founders can face the pending turbulent economic environment. They must navigate a fiscal minefield fraught with paradoxes, such as decreasing lane versus increasing sales pressure, or suppliers forcing price hikes as investors press for profitability.
Stagflation looms on the horizon, an ominous mix of slowing growth, rising unemployment and persistently higher input prices (inflation). All in all, stagflation is a toxic recipe for company finances, especially for early stage companies not yet fully sized and profitable.
What’s different about the current version of stagflation from that of past decades is the increase in complexity. The central bank may try to cool the economy by raising interest rates to make business and consumer spending less attractive. However, the Brazilian government is powerless to deal with global supply chain inflationary issues such as product shortages.
What can founders do? Here are four actions to take immediately:
Reduce your dependence on external funding
If you have a path to profitability now, take it. You should also consider other tactics to extend the runway, such as risky debt and reasonably priced lines of credit. Smart cash management will be key – renegotiate net payment terms with suppliers and customers.
Make sure you are taking advantage of all tax credits and properly managing the cash order. If you still need extra funds, recognize that valuation multiples have been affected by current economic conditions.
Re-evaluate all business assumptions
Going into stagflation, your previous assumptions for predicting product demand, prices, costs, sales, wages, and labor availability are no longer valid. Everything is in flux, so rethink all assumptions.
Rely on the latest sales and cost of goods sold data from the last few weeks, and on referrals from your customers and suppliers in the future. Carefully review this information with your sales and operations teams to identify changes in demand and supply behaviors.
Make it a point to review your data every two weeks and be cautious but quick when changing your business fundamentals.
Manage the psyche and expectations of your teams
Your people are a critical element in successfully scaling your business. Everyone will face difficult times ahead. As a founder, you must show empathy and provide employees with transparency about the true state of your business and the context of what you can and cannot do.
You need to act quickly if problems arise related to mismanagement and bad culture. A great work environment is what will sustain and retain staff even if salaries, raises, bonuses and other incentives are suspended.
Create more opportunities to bring people together and ensure regular meetings with managers.
Have an obsession with quality and good customer service
Companies with great products that address real customer issues with a high customer ROI will always stand out. They can thrive despite challenging economic environments. Make sure this is your business by staying close to your customers’ needs, consistently delivering a better product, and responding quickly to support tickets.
This guidance may seem obvious, but it’s shocking how often early-stage companies make the mistake of neglecting customer feedback and neglecting these key functions.
It’s always difficult to be a founder, and even more difficult in this environment. Everyone from your executives to employees, customers and supply chain partners is looking to you for guidance and reassurance. Like a steady hand on the wheel of your business, you can put what’s happening in context by being optimistic and realistic.
There will be tough decisions around personnel, management and product strategy. Acquire these decisions and clearly explain the reasoning behind them. Persevere, stay strong, and stay fully up-to-date on what’s happening in your organization and ecosystem. You will get over it.