How can startups and SMEs cut costs in the time of the COVID-19 crisis? (Sponsored)

The coronavirus outbreak triggered a worldwide economic recession, forcing both small and large companies to find ways to survive. Startups and SMEs have suffered the most due to a shortage of resources, a limited number of suppliers, and lower revenues.

The US Census Bureau conducted a survey to estimate the influence of COVID-19 on small businesses. Analysts found that 75.4% of participating companies experienced a large (30.9%) or moderate (44.5%) negative effect from the pandemic.

Almost 44% of respondents believe they will require more than 6 months to return to the normal level of operations. In these circumstances, startups and SMEs are asking how to reduce costs and recover as quickly as possible. Read on to learn what measures could help your startup stay afloat.

Note: Although your company is experiencing a negative impact from an economic recession, remember that many world-famous startups were founded during or after the financial crisis, including Dropbox, Airbnb, Pinterest, WhatsApp, and Uber. So, analyze the existing market and define opportunities to gain a competitive advantage.

1. Determine how an economic crisis affects your budget

To prepare a cost minimization strategy, you should make an assessment of the company’s expenses—either fixed or variable—while taking into account the actual revenues. Analyze financial metrics such as paid services, product marginality, account balance, profitability. You should also estimate the pressure that your customers, partners, vendors, and contractors may experience.

2. Plan strategies for different periods

It’s difficult to predict how long the pandemic will last, so a company should create strategies for different periods, e.g. 3 months/6 months/12 months. Then, analysts should include this part in a business continuity plan for SME to see a starting point and visualize possible scenarios.

In case you aim to address short-term issues, you can reduce variable expenses that may involve office management, business trips, hiring, etc. Preparing a 6- or 12-month strategy, you should revise sales goals, modify the existing processes, and renegotiate fixed expenditure such as rent payments and equipment lease contracts.

An example of process reconfiguration is providing online customer support (e.g., via video conferencing software, chatbots, mobile or web applications) instead of in-person visits. If you don’t have a website, you could make a web platform or a mobile application to deliver goods or services online. This will allow you to reach your audience through their tech devices, while helping boost sales and improve customer experience.

“Companies have to ask themselves whether they have the right supply chain and agility to withstand a three-month disruption.” – Ignatius Tong, EY Asia-Pacific Leader, EY-Parthenon

3. Prepare a business recovery plan

When creating a business recovery plan, you could revise former strategies to adapt to new conditions, taking into account the following:

  • Define minimum operating requirements—budgets, employees, revenue, suppliers, technology, etc.—that you need to continue working.
  • Determine a short-term capital demand to overcome the crisis. Based on the analysis, you may need to receive credit support from banks or attract investment.
  • Learn if there are direct subsidies, grants, or tax exemptions provided by the government in your country or city, monitor their availability.For example, France developed a solidarity fund to assist microenterprises in resolving cash flow problems, and the UK increased grants to small companies entitled for Small Business Rate Relief from 3000 to 10,000.
  • Analyze the current sales and marketing processes for restructuring. What can be improved or automated? For instance, you could benefit from using a CRM system to track leads, client contacts, and payments. With a CRM application, you can manage numerous requests, centralize data, maintain relationships with existing and potential customers.
  • Get in touch with your customers to find out their expectations, inform them about changes in your operations, show people your support, as well as notify them about shares, discounts, special offers, etc.
  • Regularly communicate with vendors and partners to quickly resolve arising issues. For example, you may need to find alternative supply chain options if your supplier is unable to deliver source parts, materials, etc. on time due to the COVID-19 crisis.

“Organizations that operate with transparency and open communication have inherent advantages when events require quick actions to react and reshape.” – Christopher Mack, EY Asia-Pacific Reshaping Results and EY Japan Restructuring Leader.

4. Outsource software development and other activities

If you’re thinking about how to cut costs, you can take advantage of outsourcing, and access a large pool of experts in different fields with lower wages. For example, while hourly rates of programmers in the US are around €60-€125, in Eastern Europe they earn around €20-€40. Therefore, you can cut down expenses on building a digital product by more than 65% while saving quality.

According to a survey by Clutch, up to 35% of the 500 US businesses surveyed outsource activities like accounting, IT-support and digital marketing, and it’s also common for startups and SMEs to collaborate with third-party contractors to enhance quality, access highly-specialized skills, and relieve the time of employees for other activities. If you decide to, say, make an e-commerce site to move your business online, consider partnering with an IT outsourcing company to reduce costs and raise efficiency.

5. Set up remote collaboration

By setting up remote collaboration, you won’t have to pay a rent. Furthermore, your company will provide a safe working environment, in the context of a new wave of coronavirus. To build a remote workflow, you could: use audio and video conferencing software; employ messaging applications for team cooperation; Create KPIs and deadlines; monitor task completion in project management systems; and use the best data security practices to ensure safe data storage and sharing.

Check out this ultimate guide on “How to build a remote workflow and boost productivity during COVID-19”.

Opportunities for startups and SMEs

A cost minimization strategy generally means cutting down expenses but workflow automation and optimization are those factors that can let you increase revenue.

Either increased revenue against expenditures or cost reduction = more funds.

For instance, you can launch a mobile application for online service delivery (check out how you can make a mobile app here), or incorporate a simple artificial intelligence-based chatbot into your website to answer common questions, reduce wait time, and quickly process hundreds of messages without human errors.

In fact the internet is the only king during partial and complete lockdowns. E-learning platforms, applications for home workouts, e-commerce stores, audio and video conferencing software have all seen rapid growth due to COVID-19.

“While there will be great economic dislocation that affects small and large businesses, there are still some opportunities, especially for direct-to-consumer businesses. People are sheltering at home and online a lot. If you are selling something that will make their lives better during this difficult period, there are opportunities.” — Dan Rosen, CEO and president of Dan Rosen & Associates, an early-stage technology investment and advisory firm.

If you need assistance in overcoming an economic crisis or want to create a digital business strategy, contact the team at Arateg. They will get back to you within 1 working day and help solve the required issues. The consultation is for free. Stay home, stay healthy.