Almost 700,000 new companies were founded in the UK over the last 12 months, with startup firms estimated to grow about three times faster than the traditional economy. Not only that, but they have been responsible for around 10% of job creation worldwide since 2017.

One thing is for sure, a booming startup market is critical to the UK economy. During a speech at London Tech Week 2022, former Chancellor, Rishi Sunak supported that notion, stating that: "What really matters for economic success is innovation."

In most cases, a back-to-basics approach, based around profitability and sustainable growth, will ensure businesses are prepared not only for times of economic hardship, but long-term success.

1. Nice to have vs need to have

Market fit is an often-overused term but understanding what it means and how your business is positioned within its industry remains important. In an economic downturn, ‘nice to have’ products and services are always the first to fail as customers and prospects actively seek ways to cut costs. That is why it’s so important to ensure you’re solving a specific need or problem. If this need can be qualified (and you’re ruthless in your pursuit) then you stand a better chance of success. To do this, quantify why your customers and prospects need you and the product or service that you provide. What would happen if they were to terminate their contract with you? Would it have financial repercussions for them? Would it impact other valuable resources such as time or people? Has this been proven for customers in one industry sector more than others? (If so, that is where your focus should be).

In an ideal world, you want to be in a situation where it will cost your prospective customers more to not use your product or service.

2. Lack of funding

Whilst you should always have a good grasp of your cashflow, signals of economic downturn mean that every pound is worth more today than it was even as recently as three months ago. With that, now is the time to value your pennies to give your pounds the best chance of looking after themselves.

When it comes to startups, failure often comes from adapting too slowly. Last minute spending cuts on the eve of a recession simply results in a bigger impact on the business. To use the old tortoise and hare analogy, making more consistent, controllable changes will result in a far more manageable transition into a potential recession.

There’s no escaping it. It is going to be a challenging time for many tech startups. In the first six months of this year, tech valuations have halved, signalling that investors are somewhat ‘applying the brakes’ on committing to startups.

In my experience, when startups give themselves less time to prepare for any significant changes it tends to go wrong. It’s not always easy but try to stay ahead of the game. always be looking forward  

3. Value your customers

It rings true beyond times of economic hardship, but your customers are always super valuable. Without them you simply do not have a business.

If you treat your customers well through difficult periods, you will make great strides to secure their long-term loyalty. When finances are tight, it is only natural to look for ways to cut costs across business activity, but don’t be tempted to reduce spend on customer success. Your customers are just as likely to be concerned about your ability to continue delivering so keep regular communication touchpoints and ensure they are feeling valued.

The most successful businesses are those that understand the reason why their customers became a customer in the first place. Do you understand the buyer/user journey? Who was the original purchaser? What were their reasons for buying from you? Are you living up to that decision?  The initial buyers may not be the same people who have the day-to-day touchpoints with your product or service – if so, make sure the users are endorsing the fact that your business is delivering value to key buyer personas. 

Now more than ever, you need to have a laser focus on customer success to ensure you’re delivering value.  

4. There’s no ‘I’ in team

You can probably name the core group of people who have helped take your business to where it is today and are the backbone of your success. With that in mind, when budgets become hamstrung, be sure to prioritise keeping this team together to provide a degree of consistency and business continuity.

It’s as amazing as it is daunting how quickly things can spiral downwards without a clear strategy in times of adversity. I would always encourage start-up founders to adopt a ‘glass half full’ approach when building a business but it’s equally important to be realistic when it comes to times of hardship. Conviction and confidence are vital ingredients of success, but awareness and pragmatism are needed if you are to sail through the choppy, economic downturn, waters.

In conclusion, a potential economic crisis does not have to mean the end of the road for your entrepreneurial journey. After all, history tells us that from hardship often stems opportunity - tech goliaths WhatsApp, Uber and AirBnB were all founded out of the financial crisis in 2008.