Crisis Management for Startups 5 Strategies for Weathering the Unexpected Storms

Crisis Management for Startups: 5 Strategies for Weathering the Unexpected Storms

Launching a startup is turbulent enough without major crises throwing you off course. But unforeseen events do happen, from economic downturns to data breaches to global pandemics.

How you navigate turbulent times can make or break your fledgling business. Implement these proactive crisis management strategies so your startup stays the course through stormy seas:

1. Create a Flexible Cost Structure

Build resiliency from the get-go by keeping fixed costs low and maximizing variable costs that can be adjusted based on circumstances. For example, opt for a flexible serviced office over a long-term lease, use independent contractors vs full-time employees for non-core activities, and host your platform in the cloud for easy scaling.

Put plans in place to quickly cut back on variable costs, like advertising, travel, and extra projects. If your costs are flexible like this, you can easily spend less when tough times hit. This flexibility helps you get through difficult situations.

2. Build a Cash Reserve

Having ample cash reserves is every startup’s insurance policy against disruptions. Experts often recommend maintaining at least 6 months of operating expenses in your cash reserves. This gives you a buffer to pay fixed costs during periods of reduced revenue.

Resist dipping into reserves for non-essentials like expensive office upgrades or unnecessary marketing expenses and set a policy for reserve thresholds that would trigger actions like cutting costs if reached.

3. Diversify Your Customer Base

Resist the temptation to over-invest in landing “whale” accounts early on, as relying too heavily on one or two major customers puts you at risk if they cut orders. Instead, steadily build up a diverse customer portfolio across multiple market segments, verticals, and geographic regions.

Offer multiple products or service tiers as well. Spreading your business across many smaller customers protects you so that no single loss can sink you.

4. Cross-Train Your Team

Make sure knowledge and responsibilities are shared across your startup team. Don’t have just one person own essential functions, like your social media manager. Document procedures thoroughly so that others can fill in if needed.

Conduct cross-training to have back-ups ready for key roles and ensure that your team is prepared for any unexpected absences or changes in responsibilities. Prepared team members who can shift gears will keep you on track through crisis roadblocks.

5. Test Response Plans Through Scenarios

Practice responding to different emergency situations that could happen, like a cyber attack or having to recall a product. Role play as a team to get better at reacting properly even when things are chaotic. Tweak your response plans based on what you learn from the practice situations.

Also, make backup plans for scaling back or even temporarily closing your company if a crisis requires it. Being well-prepared ahead of time means you’ll make fewer mistakes and be less confused if a real emergency does happen.

When things get rocky, people will want information, so share regular updates across different channels. Be honest and caring in explaining the problem and your action plan.

Ask people to help come up with solutions, too. Communicating frequently and clearly shows you’re in control, which calms worries and rumors. And avoid leaving people in the dark, as that causes more stress.

Startup Survival Strategies

Major business disruptions will happen. How you prepare and respond determines whether your startup sinks or swims through the storm. Implement these proactive crisis management practices, and you’ll be ready to adjust course and move forward through the unexpected.