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4 Actions Startup Founders Should Take Now To Counter Impending Stagflation

By Aidan Madigan-Curtis

Proactive founders can get in front of the pending turbulent economic environment. They must navigate a fiscal minefield full of paradoxes, such as dwindling runway versus mounting sales pressure, or suppliers forcing price hikes while investors push for profitability.

Stagflation looms on the horizon, a menacing mix of slowing growth, rising unemployment and persistently higher input prices (inflation). Altogether, stagflation is a toxic recipe for company financials, especially for early-stage companies not yet fully scaled and profitable.

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What’s different about today’s version of stagflation versus that of the 1970s is increased complexity. The Federal Reserve can try to cool the economy by raising interest rates to make business and consumer spending less attractive. However, the U.S. government is powerless to deal with inflationary global supply chain issues, such as product shortages.

What can founders do? Here are four actions to take immediately:

Reduce your dependence on external funding

If you have a path to profitability right now, take it. You should also consider other tactics for extending runway, such as venture debt and reasonably priced lines of credit. Smart cash management will be key—renegotiate net payment terms with suppliers and customers.

Ensure you are taking advantage of all tax credits and properly managing order to cash. If you still require extra funds, recognize that valuation multiples have been impacted by current economic conditions.

Reevaluate every business assumption

Heading into stagflation, your earlier premises for forecasting product demand, pricing, costs, sales, wages and labor availability no longer hold. Everything is in flux, so rethink all assumptions.

Photo of Aidan Madigan-Curtis
Aidan Madigan-Curtis of Eclipse Ventures

Trust more recent sales and cost of goods sold data from the past few weeks, and the indications from your customers and suppliers moving forward. Sift carefully through that information with your sales and operations teams to identify shifts in demand and supply behaviors.

Make a point of reviewing your data every couple of weeks and be cautious—but swift—when changing your business fundamentals.

Manage your teams’ psychology and expectations

Your people are a critical element to successfully scaling your business. Everyone will face tough times ahead. As a founder, you must demonstrate empathy and provide employees with transparency into the true state of your business and context for what you can and cannot afford to do.

You need to act quickly should issues surface around poor management and bad culture. A great working environment is what will sustain and retain staff even if wages, raises, bonuses and other incentives are on hold.

Create more opportunities to bring people together through town halls, as well as ensuring regular one-on-ones with managers.

Obsess over customers and quality

Companies with excellent products that address real customer pain points with a high customer ROI aren’t going anywhere. They can thrive in spite of challenging economic environments. Make sure this is your business by staying close to your customers’ needs, consistently delivering a better product, and rapidly responding to support tickets.

This guidance may seem obvious, but it is shocking how frequently early-stage companies make the mistake of back-burning customer feedback and neglecting these key functions.

It’s always hard to be a founder, and even harder in this environment. Everyone, from your executives to employees to customers and supply chain partners, are looking to you for guidance and reassurance. As a steady hand on the wheel of your business, you can put what’s happening into context by being optimistically realistic.

There will be tough decisions around staffing, management and product strategy. Own those decisions and clearly explain the reasoning behind them. Persevere, stay strong and fully up to speed on what’s happening within your organization and across your ecosystem. You will get through this.

 Aidan Madigan-Curtis is a partner at Eclipse Ventures, a venture capital firm with a mission to power the Industrial Evolution and make physical industries more efficient, resilient and profitable. Madigan-Curtis was previously a leader at Apple and Samsara. She has a bachelor’s degree in economics from Harvard University and an MBA from Stanford University’s Graduate School of Business.

Illustration: Dom Guzman

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