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What do you do with a start-up in face of COVID19 crisis?

Updated: Apr 21, 2020

Heading a company in its early days during this period requires balancing prudence and vision. Avoid acting out if inertia. To make my arguments clearer I will consider the case of a bio-food delivery restaurant and discuss a few things I would consider in this context.

1. Re-assess the clients’ needs.

Even if your idea was already validated, even if you already achieved product market fit take a few hours to stop and think if prior evidence remains relevant and sufficient.

Look at your (prospective) customers and the problem you are solving with your product and service and seek to understand if the current conditions are affecting the way they are looking at the problem, whether it's becoming more or less relevant, whether it relates to anything else etc. Be especially diligent if the need is high-end as these are more likely to be “neglected” (remember Maslow's hierarchy of needs) so it's worthwhile to SPEAK to your (prospective) customers to refresh your expectations. Such discussions should also serve to find out how the clients are reacting to the recent shockwave and any noteworthy behavior changes that could ultimately impact your business.

Taking the case of a bio-food restaurant, the fact that its serving a primary need makes it less vulnerable but other changes in behavior can affect demand: the fact that people are spending more time at home might mean they are cooking more themselves rather than ordering; on the contrary, those having to cope with children and work might prefer saving time to order food; some might be spending more time at their parents house (or have their parents over); some might also need food that suits their children’s preferences; other can experience increased financial uncertainty and be forced to reassess their spending patterns etc

To be able to assess the demand dynamics you have to speak with them, analyse the various clusters in your customer base and make sure you are speaking with individuals from each cluster. Look at different personas and analyse the profiles in terms of age, family, location, income, industry etc One can even use this exercise to identify a new niche.

If you are a B2B, you also need to understand the market of your clients and specific risks: are they export-oriented? Are they imports-dependent? Do they have a diversified enough clients portfolio? Are they prone to cash-flow problems? What flexibility do they have in their supply and distribution chains? What economic sectors are they mostly exposed to? etc

After taking stock of the situation, brainstorm with your team and see what can or should be changed about your product in terms of functionalities, delivery channels, pricing plans, strategic partners, market niches.

If you are in the fortunate situation where the demand for your product is expected to be steady or even increase don’t squeeze the lemon. Taking advantage of this situation is not a good idea as it will dent the relationship with the clients. You want loyal, long term clients and that presupposes win-win arrangements and long term thinking.

If you are in a situation where the demand for your product is threatened, look at your mission and see what changes can you make to achieve that in a different way. If that doesn't work go back to your vision. What are you aiming to contribute towards? How else could you achieve that? If your mission is to make health food affordable you might decide to switch to subscriptions plans of frozen food delivered weekly (hence reducing delivery costs and possibly processing). If your vision is a sustainable food system that promotes the health of people you might find other ways of contributing to that.

2. Marketing material

Be empathetic in your communication. Take a look at your marketing materials to ensure the language and purpose is not defying or denying the current reality. Having said this, empathy also means not taking advantage of the situation so even if you see this as an opportunity choose your words to highlight the win-win proposition. For a restaurant this might mean highlighting the time-saved, the advantage of having varied and nutritious food without having to go shopping and the safety measures taken for health purposes.

3. Look at your competitors

The steps take by competitors are as important as those taken by clients so be proactive and monitor or engage in discussions with them (as needed). Keep in mind however that competition should be seen in the broader sense and do not reduce your focus on companies with similar services or products. Instead, competition refers to any other options available for solving a problem. Significant shifts in economy or clients’ circumstances can lead them to reconsider other problem-solving alternatives.Home-cooking for instance can be the most noteworthy competitor of a restaurant.

“Love the problem not the solution” should be the mindset used when carrying this analysis.

4. Work with scenarios

Distinguish between short term and long term implications of the current situation. What are the repercussions if this is a 3 months, 6 months, 1 year or longer crisis and what is the likelihood of each scenario.. How is each scenario affecting your capital spending planning, your team structure, partnerships etc? Reassess these as things progress. Some business might be in a situation where in the short term this shock is a boon for business and in the longer term it can be a drag. Others can see this as a beginning of a structural shift. Again, knowing your customers will serve as valuable guidance as this will allow you to judge longer term risks or opportunities.

When assessing these scenarios also look at your vision and mission to see how their relevancy would change.

5. Revise your forecasts

Have a good look at your forecasts, especially cash flow projections. Building on all of the above, ensure that they remain relevant or revise as needed.

Be extra diligent about cash flows and do not assume the forecasts make sense just because your P&L does. See how your customer and supplier payback terms might change and model the effect on cash. Revise costs as needed and take steps to reduce them (eg marketing, rentals etc), discuss your capital investment plan and look at options of decreasing cash outflows; for instance, one can decide to outsource services (or use subscriptions) instead of pursuing with the planned investments; marketing budget might also be cut depending on how the marginal revenue is expected to have changed .

Finally, and I can’t emphasize this enough, stress test your assumptions and work with scenarios. In this way you will now what the execution risks are and monitor them accordingly.

6. Be team-oriented

Lead your team with compassion, inspire them and be concerned with their health and other personal concerns. Having the right team is key to success so it’s worth putting long term interests ahead of short-term gains. Challenges can unite a team or divide it depending on how the situation is handled; acknowledge their concerns and address them as much as possible.

Inspire by referring to your vision and mission and ensuring that they all internalise it.

7. Speak to your investors and board

It is always important to be open and honest with directors and shareholders. Best to communicate clearly and realistically with them and keep them posted about any noteworthy developments. Even if you have to bring them bad news is better to do it sooner rather the latter. Do not keep surprises for board meetings. Your credibility is at stake and that is important for ensuring ongoing support.

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