In the fast-paced and unpredictable world of startups, there often comes a time when entrepreneurs and startup founders find themselves in a precarious position – with only a short runway left and no clear path to a new round of fundraising.
While this can be a daunting situation, it’s not uncommon in the world of startup financing – and in such moments, startups need to consider their options carefully and make some tough decisions to ensure their survival.
Some strategies include cutting costs, seeking alternative sources of funding, pivoting their business model, or even shutting down the company altogether. The path forward is not always clear, but with the right mindset and approach, startups can navigate this challenging terrain and come out on top.
According to Matija Nakic, co-founder and CEO of Zagreb-based accounting startup Farseer, it’s all about financial discipline and having a survival mindset.
“You have to have this relentless discipline and you have to be a cockroach first to be a unicorn. For me this hasn’t changed and I’ve always considered that have to be scrappy and kind of relentless in improving your processes and your KPIs week after week,” Nakic told The Recursive during a panel discussion on how can startups survive a nuclear winter, organized by the Croatian AI association in Zagreb.
Frugality can be key
According to regional VCs, frugality can be vital both in good times and in bad ones.
“You need to be frugal and need to make the best use of the money you have. And then when you get the serious money for growth, then you can switch into not being somewhat frugal and just go for it. It all depends if you need to go faster, and whether you can afford to go faster as a company? Do you see yourself getting breakeven soon, do you see yourself getting a good investment soon. But also, if you see yourself in keeping the pace and keeping the plan by hiring or increasing the firm for whatever reason, then keep doing it,” Tom Vodopivec, principal at Ljubljana-based VC Silicon Gardens, tells The Recursive.
When it comes to hiring strategies in such circumstances – two aspects that can prove as key are the runway and how much return of investment would startups expect from the specific positions of their employees.
“For example, is it going to be a developer or a salesperson. Usually, these are the two priorities. If you can use external consultants then this is a question between quality and time. We know that people have less commitment and they will cost you around the same, we don’t hire since you won’t have that commitment. So, it will just come down to the runway and if you can actually afford it and if you expect from that person will get you further down the runway,” Konstantinos Vasilakos, a fractional CFO working with successful tech startups and scaleups, tells The Recursive.
Entrepreneurs should always analyze what brings cash in the company and what brings prestige, and then make the hard decision, Albanian entrepreneur Gerion Treska argues.
“Focus on cash and the low-hanging fruit for you without compromising the core added value that you are delivering to clients. Be very open and sincere with the numbers and not too optimistic. Be creative with your most loyal clients, because they are the main source of your revenues. Find ways to serve them better, how they can suggest new clients to you, find (low cost for you) incentives that can bring cash flow in the company,” Treska explains.
Surviving through a nuclear winter all year long
Surviving a nuclear winter for startups can be a daunting task, as it requires a great deal of financial resilience and careful management of cash flow.
For Ukrainian startups and founders though, the whole of last year has proven to be a nuclear winter of sorts. At the end of 2021, Kyiv-based startup Deus Robotics attracted $5M in investments, but due to the start of the war in the country, the startup did not receive any other funding in the following months.
“The first thing we did — we started paying part of the salary with options. This allowed us to survive until the next round of investments and increase our runway. The second important point is that all shareholders are obliged to save the company with their own money, and only then revise the salaries of colleagues if necessary. Luckily, Deus Robotics colleagues volunteered to take the initiative and come up with this solution. So the first, combined with the second, allowed us to survive and attract a new round of investments,” Pavlo Pikulin, founder and CEO of Deus Robotics, tells The Recursive.
For Viroslava Novosylna, CEO and founder of Ukrainian PR agency SLOVA Tech, honesty during difficult times can also prove to be a good strategy in the long run.
“Be open with the team and inform them about the real situation, as well as about further plans and decisions. Inform them about the opportunities and support that the company can provide during this period. At the same time, support for specialists can be provided through option contracts,” she tells The Recursive.
Reviewing and adapting is another new reality that most Ukrainian startups were faced with during last year.
“For example, after the outbreak of war, most Ukrainian startups and companies focused on raising bridge rounds. These are investments that are aimed at supporting the business and allowing it to prepare for the next rounds,” Novosylna says.
For IT entrepreneur Vladysllav Savchenko, nothing beats getting the right financial calls at the right time.
“If you manage to get a positive economy and your business can work for self-sufficiency or even generate a little profit, then in this case time will play into your hands. Investors are looking for such projects and teams that can make the right financial decisions on time, can save money, and can turn a loss-making business into a project that starts generating at least a small income,” Savchenko concludes.
