When crisis strikes, you need to be ready. While you can’t anticipate all crises, you can be prepared for the potential need to pivot or otherwise respond to less-than-ideal events or circumstances. For startups on a short runway, the ability to pivot and respond to a change in circumstances is especially critical since you don’t have much room for error before running out of money.
When a global crisis hits, like the COVID-19 pandemic, startups need to be able to respond for the short-term to survive, but then also set themselves up for long-term success. Below we’ll walk through a few ways to approach short- and long-term responses to crisis through strategic changes in business models, products or services, and capital fundraising methods.
Shift the business model
One way to pivot is to re-examine the startup’s business model in light of the crisis and determine whether your sales or product structure can be re-envisioned. For many businesses during COVID-19, an existing emphasis on product sales or placement in brick-and-mortar retail stores, offices, or other physical locations was severely disrupted, upending existing and growing revenue streams.
To address the diminishing opportunities for sales in physical locations, many startups and businesses have pivoted to selling products through online retail channels or to targeting a different market. Rebellyous Foods is one such example. Before the pandemic, the company was targeting its plant-based chicken product to cafeterias in schools and similar locations. As COVID-19 disrupted the food service industry with employees and students relocating to do work and school from home, Rebellyous responded to the crisis by adjusting its target market.
The plant-based food startup accelerated its development of a product version that could be sold in grocery stores, which it was able to place in Washington, Oregon, and California. The company continues to pivot by realigning its product strategy to focus on retail channels while the school cafeterias it had previously targeted are still largely empty.
Re-imagining sales channels can be an effective pivot for many startups that sell products in face-to-face retail spaces or targeted markets populated by an in-person crowd, such as school cafeterias. As other crises may come in the future, a critical look at your startup’s business model and how it can be modified to fit changing circumstances might lead to a business-saving pivot.
Find new needs to target
Sometimes a crisis creates new needs and opportunities. If you’re alert to your market as well as what’s happening in the world as a whole, you may be able to spot future market needs as they’re brewing and get ahead of it by starting your pivot before the crisis hits.
For example, the COVID-19 pandemic has upended the normal way of doing many things, including how and where many people work and learn. Businesses can look for those opportunities and implement creative solutions sometimes even before the crisis fully hits. Wonderschool is one such company that pivoted as it saw new needs on the horizon of crisis.
As it was originally built, Wonderschool provides a technology platform to support educators who are starting and running in-home childcare programs. When COVID-19 was first on the horizon, Wonderschool’s CEO recognized shifting needs both for young children, who are already the end-users of its service, as well as for older children.
In response, the company downsized its team to reserve runway in light of reduced revenue from its existing childcare-support services, but then it was able to target supporting parents and school-age children during a crisis of forced schooling at home. Wonderschool created support for micro-schools (also called “learning pods”) for in-home, mixed-age groups of students, using its existing expertise in childcare program support to address new needs.
When crisis is brewing, startups should look for the impact on their existing market and respond accordingly to stay afloat, but they can also search for opportunities to shift or expand their services to meet new market needs.
Consider Regulation Crowdfunding to extend your runway
Another pivot to consider for startup survival might not be solely refocusing the startup’s product or business model. Founders might do well to take a look at how they plan to raise investment capital.
According to Pitchbook’s Q3 2020 Venture Monitor, the number of venture capital (VC) investments for seed and early-stage startups has rapidly declined in the last year. This decline is seen particularly affecting the number of first financing rounds for startups, which reached a 10-year low in Q3 2020. With traditional venture capitalists pulling back on how much they’re investing in early-stage startups, Regulation Crowdfunding (Reg CF) can be a great alternative.
Reg CF raises are conducted on online platforms and look for smaller investments from a large number of investors. When in-person meetings and pitches are sparse and VC funding low for young startups, a Regulation Crowdfunding offering can help a young startup raise the funds needed to extend its runway and grow its business.
Ready to raise capital?
Successful pivots can lead to revenue and market traction, which also might make you a good candidate for a Reg CF raise. If you’re a startup interested in conducting a raise on an online platform, learn more now about how you can apply to raise funds on MicroVentures.
The information presented here is for general informational purposes only and is not intended to be, nor should it be construed or used as, comprehensive offering documentation for any security, investment, tax or legal advice, a recommendation, or an offer to sell, or a solicitation of an offer to buy, an interest, directly or indirectly, in any company. Investing in both early-stage and later-stage companies carries a high degree of risk. A loss of an investor’s entire investment is possible, and no profit may be realized. Investors should be aware that these types of investments are illiquid and should anticipate holding until an exit occurs.