Ambition or Austerity? 5 Reasons Why Your Startup Won’t Survive the Next Recession

The United Kingdom has been battling against financial headwinds since the Covid-19 pandemic began, and now as inflation and Bank of England interest rates continue to do battle, it appears that a recession could well present businesses with a fresh challenge.

According to recent Purchasing Managers’ Index (PMI) points, higher interest rates are causing businesses to struggle with higher overheads for 2023. The S&P Global-CIPS Flash UK PMI fell from 50.8 to 47.9 in August due to lower orders and higher borrowing costs for firms domestically, pointing to issues with both the services sector and ramifications reaching into contractions throughout manufacturing. 

These worrying contractions come as UK inflation lingered at 6.8% in July, which is wildly above the Bank of England’s 2% target, causing retaliative interest rate hikes and more jeopardy to businesses as customer spending power suffers.  

“The fight against inflation is carrying a heavy cost in terms of heightened recession risks,” warned Chris Williamson, chief business economist at S&P Global Market Intelligence. 

“A renewed contraction of the economy already looks inevitable, as an increasingly severe manufacturing downturn is accompanied by a further faltering of the service sector’s spring revival,” Williamson added.

For small businesses and startups, the prospect of a recession could lead to shortcomings that will be unsurmountable. But how can your startup survive a prospective recession? 

While many businesses could opt to take a more austerity-focused approach, recessions can be a great opportunity to out-innovate your competitors with cost-effective approaches to business processes and marketing. With this in mind, let’s take a deeper look at five reasons why your business won’t survive the next recession: 

1. You’re Not Reassessing Your Target Market

You may have researched your customer profile extensively in recent years, but recessions cause customer behaviour to change on a fundamental level. With less money, it’s reasonable to expect customers to scale back their spending and focus more on budget items. 

“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,” explains Matt Hafemeister, Head of Jeeves Growth. “‍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.”

Here, it could be worth scaling back your product or service to launch a streamlined version to help discover new markets and avoid the loss of customers. 

In late 2022, streaming service Netflix announced a scaled-down pricing plan. Initially called ‘Basic with Ads’, the plan ‘Standard with Ads’ offered users a chance to access the service for an unprecedentedly low price, with Netflix subsidising the cost through ads. 

The announcement, which came on 13th October 2022, undoubtedly provided a stock market boost for the company that had suffered severe losses earlier in the year. It also helped Netflix to reach audiences who wanted to access its shows but were unable to afford a standard subscription. 

While your startup may pride itself on high-quality goods, announcing a streamlined product or service can help users to buy into it without having to struggle with their cash flow. If they like what they see, they may be more inclined to pay for the full-price product. 

Likewise, adapting your strategy to offer more limited trials and freebies can be a great way of helping to transform leads into conversions when they may be feeling restricted by cash flow. 

2. You Aren’t Making Your Marketing Budget Stretch Further

Marketing can be a costly expense in a recession, but there are many ways you can grow your reputation in an organic way without breaking the bank.

Guest blogging is one such approach to content marketing that can be a great way to grow your presence without running up heavy marketing expenses. 

Guest blogging can be performed entirely in-house, and can grow your own reputation as an author and key industry resource. The practice revolves around generating content that will be published on reputable external websites featuring backlinks leading to your pages. 

There are many ways in which guest blogging can work, and tools like Ahrefs can be great for making your approach more efficient. 

Let’s imagine you’re a computer hardware retailer looking to grow your reputation. You’ve identified Overclockers as a leading brand in your industry and have searched for their existing backlinks on Ahrefs.

By filtering English language dofollow links, you can sort your results by Domain Rating to view a vast array of referring websites that you could approach. While it’s entirely possible to publish on DR90+ pages, it can be more effective outreaching your content to DR60-80 websites. 

By exploring alternative options, it’s possible discover other websites that still experience high volumes of traffic that could be more receptive to your outreach attempts. Here, it’s worth discovering the contact information of the website’s editors, explaining your industry position, and offering them a range of topics that you’re happy to cover for their website. This can help to generate excellent streams of referral traffic back to your pages while boosting your own website’s reputation on search engine results pages. 

SEO agency Solvid has become the industry’s only guest posting service to offer guaranteed DR90+ and Domain Authority 80+ placements on behalf of its clients. The service, which is available through a built-in online ordering system, helps to offer clients backlinks from reputable websites based on a range of flexible qualifiers and pricing plans based on website traffic and reputation. 

Because Solvid’s services are accessible on a fully online basis, there’s no need for lengthy ‘get to know you’ calls or other needless administrative tasks that get in the way of results and faster turnaround times–helping you to see tangible results faster. 

3. Your Employees Don’t Know How Valued They Are

When a recession hits, it can be a time for workers to reassess their career decisions. Although you may not see it, there’s a strong chance that the majority of your team will be thinking about things like the long-term sustainability of your business, whether they would get laid off if things began to go south, or if they should move to a larger business if the opportunity arises. 

These thoughts aren’t selfish ones, many employees crave stability and need to ensure that they’re earning enough money to cope with an economic downturn. Larger companies can generally offer better employee incentives, more stability, and more alluring benefits to workers. 

Because losing your best performers in a recession can be fatal to businesses that can’t afford to onboard and train up new staff from scratch at scale, it’s imperative that you embark on team-building exercises and seek to build your relationships with your employees. This can not only help to strengthen your bond, but they can be more willing to come to you with concerns they have about your startup. 

Supporting your most talented employees and letting them know how valuable they are to your business can help to nurture their skills and enable them to perform better. While this could mean more training programs to help their development, or more time set aside for their concerns, this can help to save costs in the long run than having to manage employee churn. 

4. You’re Failing to Retain Your Customers

Although it’s essential that you continue to grow your startup by looking to generate new leads and convert them into customers, it counts for very little in a recession when even your existing customers are unwilling to come back and make a second purchase. 

In a recession, consumers are more cautious about parting with their money, and this means that they’re unlikely to take the plunge and try new things. For startups, this means that you should look to anticipate this issue by focusing on retaining your existing customers. 

One essential strategy to take on involves improving the value you offer your best customers. Whether this means upgrading your features making improvements to your popular products to suit their needs, or creating better customization options, it can be a great way to add a little personalization to your products and encourage more loyalty. 

This, in turn, can help you to foster stronger relationships with your customers and leverage more social proof content on social media platforms to help your marketing efforts. 

5. You Haven’t Tapped Into the Gig Economy

The gig economy is an amazing opportunity for startups in the midst of a recession, and allows you to hire freelance workers for short-term tasks without having to risk expanding your payroll should your sales dry up in a month or two’s time. 

These part-time hires, independent contractors, project-based workers, or any other form of temporary staff can help to chip in on larger orders, or should you experience a flurry of clients, or are looking to bring a new product to market. 

Platforms like Fiverr have become powerful resources for startups and multinational corporations alike in helping to bring in short-term staff and have them work on tasks with little fuss. 

The great thing about the gig economy is that you can build relationships with your freelancers to have them return for any future upturns in business, or even approach them for a full-time job should the skies clear and confidence grow. 

Never Cut Costs in Matching Your Ambitions

While it can be tempting, particularly for bootstrapping startups, to take austerity measures when a recession hits, it can often be difficult to regain your momentum after a recovery begins to take place. 

You should never make decisions that could jeopardise your business, but adapting your business to blend your ambitions and sustainability can help to forge mutually beneficial solutions. 

Recessions can reward startups that work smarter, and the most adaptable and flexible firms can thrive in what’s an excellent opportunity to overtake competitors. Continue to work smarter throughout the difficult times and your startup will reap the benefits during the recovery.

All the photos in the article are provided by the company(s) mentioned in the article and are used with permission.