According to Fortune, nine out of ten startups eventually fail. This high failure rate is mainly due to the vulnerability of startups. At an early-stage small business, they are more susceptible to market conditions and financial risk. However, if you successfully brave through the early years of your business, your chance of survival might increase. This is why prioritizing management methods is important which could put your startup in good stead.
Here, we will discuss tips you can adopt to help your small business manage its business operations and survive its early stages.
A Guide to Startup Survival: Four Vital Tips You Should Apply
Liquidity Takes Priority
Liquidity is your startup’s ability to meet its financial obligations without incurring drastic losses. According to CB Insights, over 38% of startups fail due to liquidity issues. Liquidity should take pre-eminence in your business due to some reasons. First, your company’s liquidity ratio is the primary factor that most investors consider when deciding to invest in your company. If your liabilities surpass your liquid assets, most investors and creditors will perceive this as a sign of trouble.
Liquidity also gives you solid insight into the financial performance of your startup and the next business moves to take. For instance, a low liquidity ratio will help you foresee possible financial hurdles and make smart decisions to evade them. That said, it is vital for you to adopt good liquidity management practices. Some tips to achieve this include:
- Invest Cautiously: Investment is a norm across the startup ecosystem and the general corporate world. Companies regularly invest to improve their balance sheet and protect their businesses from economic downturns. However, it is vital to invest cautiously and avoid risky investments. No doubt, risky investments often come with juicy returns. However, you must note that they could also jeopardize your company’s capital base. Apart from the fact that you may lose your funds, you might also lose investor confidence. This will significantly affect your ability to raise capital subsequently.
- Monitor Cash Flow: One of the pathways to liquidity is proper cash flow monitoring. This is because cash flow management helps you track the accounts receivable in your business and the accounts payable. This way, you can determine where your startup’s cash goes and if you can cut down on cash outflows. One way to track cash flow is to regularly issue cash flow statements. This might help you understand if your business is well-positioned to meet financial obligations.
- Have a Liquidity Risk Management Plan in Place: While your startup might have sizable current assets, many things could go wrong. A customer may delay service payment, or you may experience a time lag in the arrival of your funds. On both occasions, you would need to run your business regardless. However, you might have to shut down business operations if you do not have adequate plans in place. In such situations, one way you might want to address liquidity risk is by looking out for the cheapest ways to borrow money. This could ensure that you are able to access the cash your company needs without compromising its financial strength.
Gather the Right Team
About 14% of startups fail because they lack the right team to drive the company’s vision. This is why having the right team might be key to your survival as a small business. Expectedly, your ability to create the right team mainly depends on your hiring process. While hiring, it is vital to prioritize capabilities. This is because, unlike big businesses, small businesses do not have the luxury of spreading technical capabilities across numerous employees.
Essentially, the capabilities of every employee matters and will reflect in your output as a small business. Another thing to possibly do is pay attention to soft skills like collaboration and general interpersonal skills. Employees with soft skills might be more likely to create a cohesive and productive team for your startup.
Pay Close Attention to Compliance
Regulatory and legal challenges contribute to the amount of failed startups. This may be why compliance is vital, particularly if your startup operates in an emerging or fast-paced area. In such cases, regulators are more likely to update or create regulations to catch up with industry trends. Not all of these regulations will be favorable to your business.
Thus, it might be helpful to engage a compliance professional so you can get an informed insight into how specific regulations could affect your business operations. This way, you can easily foresee disruptions and make adjustments to prevent total collapse.
Watch the Markets and Your Product
Effective products are undoubtedly great, but market needs determine the viability of such products. It may be important to understand the user’s needs and seek to solve them by launching a good product.
While there is little you can do to avoid being outcompeted by companies with more resources, a market-sensitive product gives you a good chance. This product-driven and market-driven approach will likely put your startup in good stead to thrive and survive in the industry.
Contrary to popular opinion, the demise of a startup is not automatically sealed upon its launch. Many startups survive the early stages and move on to occupy a significant market share. Achieving these feats often depends on responsible financial management, strong regulatory compliance, and market sensitivity.