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In Times of Crisis, Cash is King

04.05.2020

In Times of Crisis, Cash is King
Crisis management calls for tough decisions. But how to know which are the right ones? Advice from a Berlin founder. 

Solutions in a crisis are never “one size fits all”. Like people, companies come in different sizes, work in distinct industries, and face varying challenges. What works for the big corporate might not work for the young startup.

 

Yet, there are some general guidelines to help companies that are at the same stage of development. I would like to share some advice and insights into the crisis management of a young startup. I founded Tracks two years ago and the plan was (and still is) to close a Seed+ round this June.

 

A general rule of thumb to follow in these uncertain times is to be pessimistic when planning. Optimism can lead to a misleading sense of security that you will not thank yourself for later. Even customers who have signed a contract with you or have expressed their interest in your product might now want to hit the pause button on negotiations with you. So be cautious and pessimistic in your planning; you might even be positively surprised that way.

 

Many startups are surviving on investment rounds. The current situation is, therefore, a challenging one for young companies, as investors stay put and evaluate the situation anew every day. Depending on their appetite, their main priority is to steer their existing portfolio companies through the Corona storm, not necessarily expanding their portfolio.

 

This is undoubtedly a tough situation for startups. Even more so than bigger companies, they are dependent on money and a steady cash flow. But there is a silver lining: Once the worst of the dust of the crisis has settled, investors will do what they do best - which is investing.

 

To navigate through the cash challenge, my advice is to pay special attention to these three areas of your business:

 

  • Costs. Evaluate carefully where your money is spent and reduce your burn rate. Make tough decisions if needed: Let go those employees who have been hired for future projects, introduce short-time work for the others, and for yourself.
  • Income. Be brutally honest to yourself about your funds and try to find ways of generating more. Also, take stock of your potential clients and of the ones whose interest you have already secured - keep them happy and engaged.
  • Investment. Put all your effort into securing investments. It is a tough investing environment at the moment, but that makes it all the more important to convince investors now that your product is worth it and that your idea is crisis-proof.

 

In short: Do everything you can to reduce the burn rate of your cash. Cash is king, and all efforts should be made to keep the monarch happy until the next investment round.