David Stauffer at Harvard Management Update have put together a list of five missteps to avoid in volatile times (with volatile really meaning that the economy is in really bad shape…):

  1. Delaying decisions that will improve the long-term health of your company for fear of the market’s near-term response
  2. Assuming that the smart way to gear back up is always cautiously and incrementally
  3. Trying to bulletproof the company by moving into recession-resistant businesses
  4. Focusing on broadening your customer base
  5. Assuming that a recovery is based on what leaders do, not what they think

Some of these advices are clearly geared towards large and mature companies (start-ups don’t often have the choice of jumping into recession-resistant businesses, they rather follow their survival instinct and find cash where ever that might be), but I still think there are a some good points also for start-ups.

Although start-ups (and even more so their investors) are focusing on growing the customer base, it is especially important to focus on your existing customer base in a recession and build strong customer relationships. If you provide a valuable service, many customers are willing to chip in to make sure you don’t go out of business. And often you’re in a position where you could actually grow your business with existing customers by understanding their pains and come up with solutions. Also, you build a great platform for when times are improving again.

Another relevant point is to figure out ways to keep the company heading in the right direction (while still making sure that there’s enough cash in the company of course). This can be hard to achieve with investors, banks and family breathing down your neck, but if you loose the sense of direction you’ll be soon gone anyway. And there are ways to handle this, one example is to get customers to pay for product development that’s planned to be implemented in the product at a later stage. Another example is to use models that generate cash faster, e.g. use factoring (even though you loose some revenue it doesn’t affect your business model) or introduce a premium option instead of only relying on an ad-based model (at least until the ad-market picks up again).