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02 Nov, 2021

What Does a Global Economic Crisis Hold for Startups?

The world is teetering now from the arriving financial crisis and coronavirus pandemic. On March 9, 2020, a stock market crash happened known as a Black Monday. On this date, DJIA went down by nearly 7% in the US, and FTSE 100 dropped by 8%. The upcoming crisis is prone to affect all businesses, and especially tech startups. It will be more difficult for them than ever before to raise funds, find investors, and pitch their products. So, what are the key risks and opportunities for startups in the forthcoming economic crisis? The answer to this question you’ll find out in our article. Go ahead to read!

Will it Become the Next Great Recession?

Startups and Small Business During Economic Crisis | LITSLINK Blog

Global stock markets have experienced the steepest fall since 2008, as The Guardian indicates. The FTSE 100 index lost its value of almost £125 billion in a day, which was the biggest decline since the Brexit referendum in 2016. On Wall Street, trading was stopped once the Dow Jones index dropped by 7.8%. The same situation took place on the European stock markets. Germany, Spain, and Italy also witnessed a significant decline in all market shares (8% on average).

The coronavirus outbreak and an oil-price war between Russia and Saudi Arabia triggered the arrival of a global economic crisis. The situation on the oil market isn’t sunny at all: the price for crude oil decreased by 26%, and Brent crude fell by 24% as well. The figures haven’t been so discouraging since 1991. All these above-mentioned facts indicate that a new economic collapse is on the rise, and businesses have to prepare for it to survive in such a challenging period for humanity.

Are Startups at Risk?

Risks for startups and small business in upcoming economic crisis - infographic | LITSLINK Blog

The upcoming economic crisis is going to affect all companies: multi-billion corporations, startups and small-sized businesses. Morgan Stanley, a multinational financial company, predicts a sharp decline of 2.3% in annual GDP growth. Moreover, the coronavirus outbreak might even worsen the situation and result in the economic collapse. Therefore, startups should be ready to handle the approaching financial crisis and consider the following risks as:

A Significant Drop in Staff Productivity

According to The Economist, a COVID-19 pandemic is the main trigger for a coming crisis in business. Also, it will have an impact on startups, decreasing productivity among their employees. Numerous sick leaves, remote days and global panic might undermine your business processes. The more employees will be affected by this virus, the wider is the productivity gap.

Issues with Fundraising Campaigns

Having an amazing product idea is not enough to run a successful startup. You have to create a well-thought-out business plan and pitch to investors to raise funds. But in the modern harsh business environment, it will be challenging for entrepreneurs to get any investment. Therefore, the best decision here is to extend the runway as much as you can. Danny Crichton from TechCrunch suggests startups to review and optimize their expenses, as it has become difficult to get VC (Venture Capital).

Disruptions in Supply Chain Management

COVID-19 transformed supply chains across various industries. In particular, the manufacturing field bears substantial financial losses. The coronavirus outbreak in China, Bangladesh, and Mexico, which are among the main manufacturing centers, profoundly affected the sector. Thus, if you have a startup that provides software development services in manufacturing, the crisis might lead to shortages, delays, and changes in product quality. Contact LITSLINK, and our software experts will answer any of your queries.

How Can Startups Prepare for Economic Crisis?
Economic collapse preparation - 5 solutions for startups (infographic)| LITSLINK Blog

The coming economic crisis must be one of the top reasons why startups fail on the global market. But there are five steps to be considered by entrepreneurs to address their pain points during the global recession. Organizing live business meetings, allowing employees to work remotely, ensuring your workers have healthcare benefits, finding alternative payment methods, and solving logistics challenges are just a few measures you can undertake to mitigate risks and ensure your business is on track. So, let’s go into more detail and discuss the most effective ways to manage the upcoming crisis!

1. Organize Online Conferences

As more events are canceled due to the novel coronavirus outbreak, businesses look for more opportunities to organize them online. VR-based conferences are prone to gain traction soon.There are also numerous video conferencing tools to assist you with this task. If you have an important meeting that cannot be delayed, but you don’t want to endanger participants, bring all of them to the conference room and change the format of your event.

2. Find Alternative Payment Methods

With an aim to decrease human density, citizens are advised to use food delivery services. Postmates, a US delivery startup, caught on to this trend and implemented a contactless ‘pickup’ delivery. Starbucks, McDonald’s, and other fast food companies followed this trend as well.

3. Address Problems in Logistics Caused by Coronavirus Crisis

With a rapid spread of COVID-19, many companies experienced difficulties with the supply chain. Austin, a US-based startup, provided a smart solution for better supply chain management. The company enables clients to track the product status with an opportunity to automate non-compliance conditions. This idea helped Austine raise $17 million of investments in 2020.

4. Encourage Employees To Work Remotely

To prevent further spread of coronavirus, public health professionals advise shifting to remote work. Many renowned companies like Microsoft, Google, Apple, and others decided to contribute to social distancing until the pandemic is not taken under control. But such an option isn’t relevant to the service sector, as most of its employees have to work on-site.

5. Review an Employment Contract

Ben Chapman, a journalist from The Independent, offers several measures to employers that will help them tackle the upcoming coronavirus outbreak. Paid sick leaves, spent days on quarantine, and day-offs to look after an infected relative must be included in the employment contract. This step will develop loyalty and build trust among workers and their employers.

Wrapping Up

The approaching Great Recession causes a lot of uncertainty about the future of financial markets. Now, you’re equipped with all the relevant information about global economic trends, risks, and solutions for startups. Develop a plan, be prepared to face challenges and undertake precautionary measures to mitigate risks. All these steps will help you to survive during the challenging period and bring your startup to a new economy.

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