As a co-founder of a health-tech startup the Corona crisis is a big pain. I believe the minority was prepared for such a pandemic. We should have listened to Bill Gates and his alarming talk five years ago. I am pretty sure things would be different now. Follow the link to his speech.
What happened in Switzerland from an economic perspective as a response to the pandemic?
The Swiss Federal Council provided liquidity (cash) support for Swiss SMEs in excess of 20 billion Swiss francs. That definitely deserves credit. Unfortunately, Swiss startups were left out. To obtain governmental liquidity support you need to have proven revenue streams in the past. The specific cash amount you can apply for is 10% of your turnover. The majority of young high-tech companies have no relevant turnovers or none at all – for research-intensive life sciences start-ups it takes a long time to generate revenues. Those startups spend several years researching pioneering technologies in biotechnology medical technology or other fields before they can even bring a product into the market.
This situation is a serious threat which results in a dramatic loss of innovation that has been built up over the last couple of years. The next generation of successful Swiss companies and therefore plenty of future jobs won’t get created. A serious setback for all of us and this health crisis will affect innovation in a long run.
If your startup is affected, you must change your current structures and processes to survive the crisis. Here are some personal recommendations, which are in my point of view the most important ones for the next few months:
1. Follow up with your team regularly in order to maintain social contact, besides working remotely. Put the personal wellbeing of your team members to the top priorities. Ask them how they and their beloved ones are doing. Being kind and empathic during this “social-distancing-times” is important.
2. Spend your money wisely and reduce the cash burn rate as much as possible. Calculate your worst-case scenario budget for the next few months. Be transparent about the financial situation with your team. At times like these, it can make sense to involve all your employees into the budget calculations. Such an openness helps to improve the willingness of your employees to assist as good as possible. Try to launch employee stock-option plans as part of your compensation package and too reward loyalty. Keep in mind, protecting your liquidity is key.
3. If you take a loan, you must be aware that this may not be interesting for your potential investors. Be prepared that your company valuation could be lower. Therefore, you should only go for a loan if there is no other option. Financial planning is king!
4. Communicate with your existing stakeholders more frequently, ask for help and expertise. Be aware that you maybe must change your strategies to get through this crisis.
5. Since a lot of potential investors have lost money in the stock market, consider fundraising to be more challenging in general. Try to put all your energy into fundraising and activate your personal network.
6. Build up a risk management, to prevent unpredictable future risks.
To all the downsides there are opportunities as well. For some startups this crisis can be a huge accelerator. Companies are looking for digital innovation and are therefore more likely to invest in tech and digital startups. If you belong to this kind of startups make the most out of this time and try to shape the future. We need innovation!