September 17th, 2020
By Richard Bartolanzo and Brian Hamm, Bennett Thrasher
In the early stages of any startup company, there are a number of challenges that stand in the way of getting the business off the ground. According to CB Insights, 67 percent of startups stall at some point in the initial funding process and less than 48 percent of these companies managed to raise a second round of funding. With the odds stacked against most founders, long-term success seems like an insurmountable feat. The addition of an unforeseen global pandemic into the equation only seems to make the prognosis for success even more remote.
When COVID-19 rose to a pandemic in the early months of 2020, many key players in the startup world predicted the tech industry would experience a significant drought in available investment capital. But, as it turns out, there remains ample capital up for the taking, with investors across the globe seeking to support relevant and worthwhile tech companies.
By considering the following recommendations and strategically adapting to fit the growing needs in the market, your business can stay on the right track to success, regardless of the fears and challenges created by the COVID-19 pandemic.
Navigating the multitude of steps necessary to run a successful startup begins with creating a strong business plan. While your business should offer clarity into your overall strategy and business goals, it is crucial to maintain some sense of flexibility in anticipation of unforeseen circumstances that could impact your ability to successfully scale your business.
If there is one thing that we have all learned in 2020, it is to expect the unexpected. When establishing a financial plan and early projections for a startup business plan, founders should, to the extent possible, stay agile and maintain the ability to adapt as conditions present. It is especially important early on to carefully evaluate your revenue streams and any major expenses or anticipated costs.
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Evaluating revenue channels and examining your customer base can go a long way in determining whether cash streams from these sources are sustainable. For example, if you develop and license inventory management applications to the food and beverage industry, it may be wise to rethink whether such an application can be developed and sold within an alternative industry that is not as adversely affected by COVID-19 restrictions.
Similarly, reviewing forecast expenditures and developing growth models that are scalable can be invaluable in pushing through rough economic conditions. For instance, it may be wise to adopt a more permanent work-from-home policy rather than committing to a long-term lease on an office space. Also reviewing workforce needs and using a more flexible contract labor base could be a safer use of funding than hiring a more permanent employee workforce.
Since times are uncertain and the market is highly volatile, ensure you have a clear understanding of your capital flow with adequate projections. Whether you are seeking funding from venture capital (VC), crowdfunding or elsewhere, understanding your financials will give you a better sense of your specific income goals. In order to attract the next level of investors for your business, it is important to present a solid financial position with proper assumptions and adequate analysis.
When you take a closer look at the startups that have succeeded over the past several months, you will see a common thread. Many of these top-performing companies fall within the realm of health technology, cloud communication and collaboration software. COVID-19 has presented an opportunity for startups in these categories to accelerate as the current market presents a much stronger demand for these offerings and types of services. As companies are taking a closer look at their bottom lines and dealing with more complex issues related to remote work, healthcare delivery and virtual collaboration, products and services that make these tasks more efficient become must-haves.
With that in mind, ask yourself if your product falls into the must-have category or just the good-to-have category. At a time when executives are more conscious of budgets and cost-cutting opportunities, it’s ideal to deliver a product people consider essential.
While this may not apply to every product, this also presents an opportunity to thoughtfully pivot and alter your product line to strategically fill a void in niche areas – ultimately taking advantage of the current state of the market and the major needs from companies and individuals.
How can you look beyond your existing product line and service offerings to provide indispensable value? Adaptation is key, so remaining flexible and strategic in your overall core competency will benefit your company in the long run.
As COVID-19 forced many manufacturing operations around the world to come to a screeching halt, production for many technology companies with a hardware component have been delayed or discontinued altogether. As a result, some founders are facing the challenge of identifying a new manufacturer.
A new manufacturing partner could be stationed in a different country than your previous partner, which may create new logistic, regulatory and tax issues that add unforeseen costs to the production process. Some of these unexpected costs may come in the form of increased financial burdens through the shifting and application of local tariffs for raw material supplies. Other costs may come in less obvious forms, such as lost customer confidence due to variable production schedules and quality control issues. Founders need to tread carefully as they look out for these potential problems and determine how they will impact your bottom line.
While the coronavirus pandemic has upended the business world and caused many startups to struggle to stay afloat, it’s essential that you reevaluate your business plan and adapt to the changing needs of the market. Ensuring your overall strategy and core competencies are flexible enough to evolve will be crucial to the continued growth and future success of your company, especially in the wake of COVID-19.
Bennett Thrasher works with technology companies from early to mature stages in the business lifecycle. With our depth of experience, we are uniquely qualified to consult with startups, because we understand and can help you address the unique challenges you face as your startup continues to grow.
As a Techstars Global Network Partner, Bennett Thrasher’s technology industry experts are here to help. Our team of experienced professionals will brainstorm and develop a roadmap for your startup to your key financial reporting and tax structuring needs. These interactive sessions are complimentary and intended to help you achieve profitable growth while taking advantage of available financial incentives. To learn more, please contact Richard Bartolanzo or Brian Hamm by calling 770.396.2200.
Richard Bartolanzo is a Partner in Bennett Thrasher’s Tax practice. He has more than 30 years of experience providing U.S. and international tax advisory services. He currently co-leads the firm’s Technology & Bioscience and Insurance practices.
Brian Hamm is a Partner in Bennett Thrasher’s Financial Reporting & Assurance practice and co-leader of the firm’s Technology & Bioscience practice. He has significant experience serving startups to large multinational public and private companies.