How To Manage Startups During A Recession: 5 Expert Tips

Recessions can be a challenge to manage as a startup. You may be dealing with how to:

  • Fundraise when it’s harder and slower to raise money during an economic crisis.
  • Extend your runway enough to get you through the downturn without diluting your business or receiving low valuations.
  • Cut your burn rate without making mistakes that could jeopardise your business growth.
  • Hire the talent you need to grow your startup when you don’t have the capital.

However, it can be rewarding to manage startups during a recession when you know how.  

We spoke with Matt Hafemeister, former partner at a16z, who shared his expert advice on running a new business during a financial crisis.  

In this post we’ll cover:

Note: Managing a startup during a recession is difficult if you don’t have the right tools or partners. Try Jeeves: we’re a global financing partner providing a full financial stack designed for business growth. 

Manage your startup during a recession with 5 strategies

“Your job as a founder is to make sure your company can get through an economic downturn because not every company is going to make it. 

If you create the opportunities to grow and scale, you’ll no longer have the same 10 competitors that went into a bad economy with you. 

You’ll have a more open market post-recession with only one or two competitors. You just need the right roadmap to get there…” Matt Hafemeister

Matt suggests paving your way to profitability with these five strategies:

1. Increase your cash runway to get to the next stage

You can increase your cash runway in a couple of ways:

  • Fundraising with internal or external investors
  • Debt financing

Even though it’s more difficult to get venture capital during an economic slowdown, it’s not impossible. The last great recession of 2008 produced startups like Uber, Whatsapp, and Slack

But fundraising in a recession will take time. Matt suggests calculating 24-36 months of cash runway to survive until the economy improves. 

If you turn to investors, it may be difficult to raise money externally in an economic downturn, especially for early-stage startups. External investors will be more discerning about where they invest, and they may compromise your valuation.

Instead, you can start your fundraising by tapping into your internal investors who are more likely to have your best interests at heart – they’ll want to see you succeed and preserve their initial investments because they believe in your business. 

The potential downside to fundraising internally is that investors could:

  • Offer you a down round, buying shares of your company for less than what they originally gave you.
  • Ask for more shares than you’d like, hampering your flexibility and potentially taking control of your company because they’ll have a larger stake than you. 
  • Take months before reaching an agreement. Venture capitalists and angel investors may have less liquidity during a down market and they’ll be less likely to make quick decisions during uncertain times.

Instead of VC funding, you can retain your ownership and increase your cash runway through debt financing. With debt, you’re borrowing money for a limited time and paying it back with interest. 

The most common types of debt are bank loans, lines of credit, and credit cards. 

The major drawbacks of traditional debt financing are:

  • Personal risk. This is higher than equity funding because banks and institutions usually ask for covenants, warrants, and personal guarantees.
  • Time. You’ll have to provide a ton of paperwork about your company and business model to receive a loan or line of credit. Once you do submit all the necessary forms, it could take months before lenders reach an agreement. 
  • Interest. Unlike equity, which is free, you’ll have to pay interest on debt. So be realistic and only agree to an interest rate you can pay back.  

You may also like: What is venture debt, how does it work and when to use it?

2. Cut costs to survive

Cutting costs involves lowering your burn rate, which can also extend your cash runway. 

You’ll have more freedom with this strategy because there’s no one to tell you what to do or how to use the money you save. 

Matt recommends looking at your burn rate from both a revenue perspective and a margin perspective to know how much real time your business has to remain solvent. 

Check out Matt’s suggestions on how to calculate your burn rate in our post, How to extend your startup runway.

Once you’ve calculated your burn rate, consider reducing or cutting costs in these areas:

  • Full-time employee (FTE) numbers and benefits. Layoffs may seem enticing, but this cost-cutting method is rougher because you're affecting people’s lives and families. Consider alternatives first, like cutting back marketing expenses and SaaS spending or enforcing stricter expense policies across offices worldwide.
  • Customer acquisition costs (CAC). Take a good look at your CAC because you’re probably spending a lot of money for very little ROI. For example, if you’re bleeding money on advertisements that aren’t bringing in high-quality leads, scale this back and rethink your strategy.
  • Global expenses. You may be using different suppliers and vendors for the same services in your satellite offices around the world. Cut what you don’t need and negotiate deals with the most cost-effective vendors. Invest in global expense management software, like Jeeves, that can track your expenses worldwide with one tool. 

Discover which spend management tool is best for your business. We compare Payhawk vs Spendesk vs Soldo vs Jeeves.

3. Tap into credit for extra security

Depending on how much runway you have, you could also add a line of monthly credit to your funding options. 

A line of credit and business credit cards can give you the cash flow you need to take advantage of business opportunities, increase your revenue, purchase supplies, and buy inventory. 

However, be wary and benchmark your options carefully. Most business credit cards come with transaction charges, FX fees, hidden costs or annual fees like Amex that can limit your liquidity. To offset the costs, find a business credit card with cashback or with perks and rewards on all your purchases, like Jeeves

For example, Jeeves offers discounts on tools and software startups typically use, like 25% off Slack and up to 30% off your first year using HubSpot (then 15% off after). 

4. Adapt your product to the current market to reduce churn and acquire new customers

“In a bull market, people are investing in the future for growth and you’re focusing on helping them get to the next stage or providing business value. 

But in a recession, people are thinking about how they’re going to survive. So, you need to rethink why customers are coming to you and why they're not coming to you. 

Your strategy should focus on your customers’ current needs, which have changed, so you can adapt your product.” – Matt Hafemeister

Whether you're B2B, B2C or service-oriented, your customers’ behaviours are going to change in a recession. With less money available, people are going to cut back on any extra spending and their focus will shift. 

Make sure to adapt your product or service to new consumer behaviour in a downturn to find a new product-market fit. And rethink your marketing strategy to match your product development.

A great example of this kind of strategic thinking during economic volatility is the online travel agency (OTA), Hopper. When the travel industry saw numbers crash at the onset of Covid-19, Hopper doubled down on their fintech investments protecting customers’ trips. This private company doubled their revenue during the pandemic and outperformed competing OTAs, like Airbnb and Expedia, in 2021. 

5. Increase your revenue

Whether you choose to extend your runway, cut costs, optimise your spending, adapt your product to the current recession-minded market, or combine them, you should avoid unprofitable deals during a downturn.

If you’ve set up a new product or want to launch your adjusted product or service, be sure to create a strategy for a healthy pipeline that creates profitable deals. 

For example, you could provide incentives for customers to switch from monthly to yearly contracts or you can eliminate free-tier subscriptions and offer limited-time free trials instead. 

Above all, you want to focus on attracting high-quality, low churn customers to ensure you can have long-term cash flow because you don’t know how long a recession will last.

Learn why VCs recommend that startups focus on extending their runways and creating healthy pipelines.

Optimise your spending with Jeeves  

Jeeves credit

Open free global business accounts in CAD, USD, GBP, and EUR to upload funds and use across free physical and virtual cards and local or cross-border payments. Approvals are faster than the traditional process of opening bank accounts in each country you operate in.

In addition to quick answers, you’ll also receive:

  • Free unlimited physical and virtual corporate cards. Includes free shipping worldwide.
  • Quick management. Use and manage your global funds via app or desktop wherever you are in an instant – both your card and payment spend links to Jeeves’ expense management software. 
  • Global business accounts. We make it easier for companies that operate across borders to open currency accounts with no open fees or monthly recurring fees.
  • Limited fees. There are no annual or user fees and no APR. There is only a competitive FX fee on international purchases.

Get cashback on all purchases and Jeeves rewards for instant ROI

Jeeves corporate cards come with additional benefits, like:

  • Cashback on all spending. Jeeves enables you to earn cashback on every transaction, including up to 1% cashback on all card spend.
  • Up to $100,000 with Jeeves perks and benefits. Extend your runway with cash savings through Jeeves’ partners including discounts on Salesforce, Zendesk, AWS, Slack, Twilio, and more. Don’t forget to redeem your airport lounge pass when you purchase air travel using Jeeves. 
Jeeves perks and benefits
Jeeves perks and benefits

Cut costs with a global expense management tool that helps you save as you spend

Jeeves’ expense management platform
Jeeves’ expense management platform

Jeeves' expense management software connects to Jeeves’ line of credit and business credit cards. So, you’ll have greater visibility and the controls you need to reduce costs and cut burn rates with precision across all your offices.

Here’s how Jeeves’ expense management can help you manage your startup during a recession. 

  • Use free expense tools to optimise spending. Create an unlimited number of physical and virtual credit cards for free. Assign credit cards per department, employee or expense types to quickly identify how to save money. 
  • Save time to make money. Expense reimbursements can take a sizeable chunk of time away from staff and your accounting department. When you issue business credit cards for your employees, you can eliminate the complexity of expense reports so all parties will have more time to work on boosting your revenue.
  • Set spending limits to stay within budget. Add a spending limit on each company card so departments and employees can avoid overspending. You can change spending limits at any time and block or delete cards with a click. 
You can create Jeeves physical and virtual business credit cards with spending limits
You can create Jeeves physical and virtual business credit cards with spending limits
  • Download and filter transactions to track employee spending. Filter by cards and employees to see where you can reduce and cut costs easily. You can even filter employee expenses for missing receipts to improve accountability. 
  • Integrate with Xero and QuickBooks to create expense policies. Link your Jeeves’ transactions to your accounting software for more detailed reporting to create procurement policies, educate overspending employees, establish budgets and reduce costs.
Jeeves integrates with Xero and QuickBooks
Jeeves integrates with Xero and QuickBooks
  • Get global visibility to cut costs. If you’re spending using different platforms in different countries, you might not have enough visibility on your spending. You may not know if you’re spending $15,000 in your Mexican office, $50,000 in the U.K. or $135,000 in the U.S. With Jeeves, you can see all those expenses in one tool and get a global picture of your spending to make better cost-cutting decisions worldwide.

How Jeeves clients manage their businesses during an economic downturn

Here are 4 examples of how our customers are using Jeeves to survive economic uncertainty:

  1. Advertising agency increases their monthly ROI with Jeeves. One of our clients in the U.S. makes hefty payments on online advertising. With Jeeves, they get immediate ROI on all their marketing spend via Jeeves cashback.
  2. VC-backed company taps into Jeeves for added security. A longtime Jeeves client has been using the Jeeves expense management to help optimise costs. But they wanted extra security while they waited for their next funding round to close and tapped into Jeeves' working capital to extend their existing line of credit.

Recession-proof your business with one tool: Jeeves

We hope this article has helped you find your own roadmap for managing startups during a recession. 

You can make Jeeves part of your recession-proofing plan because we can be your complete financial business partner. 

With one tool, you can fund your business and optimise expenses to outperform your competition. You can get the visibility you need with Jeeves to understand which departments are over budget and how much capital you’ll have on hand to take your business to the next level. 

When you tap into Jeeves’ expense management, corporate cards, and payment solutions so you can get the security you need to create a path to profitability and survive any market.

Looking to survive the recession but are not sure how? Try Jeeves.