By Simba Mswaka
AS the year comes to a close, it’s time for founders to reassess what went wrong, what went right and how one can do better in 2023.
Every year brings its own share of challenges for Zimbabwean founders and the last few years have been pretty turbulent to say the least. 2020 was peak COVID-19 and 2021 we were still reeling from its effects. Founders had contracts cancelled and work shelved till the environment was accommodating enough.
As we were getting out ofCOVID-19 and into a brighter 2022, Russia decides to invade Ukraine and now the entire world is a suffering spectator in a war that is close to 1 year and with no end in sight. This war has affected global supply chains of grain and we have seen global oil prices continuously rise, thereby making life more expensive and reducing the purchasing power of customers.
Some of these issues are out of our control, therefore as founders we need to work on the things that are actually within our control in order to safeguard our businesses. The following are some crucial steps that founders can control to maintain sustainability in 2023.
Manage Your Burn Rate
The Burn Rate measures the rate upon which a company spends its cash (i.e., how quickly a company is spending, or “burning,” its cash). In the context of cash flow negative start-ups, the burn rate measures the pace at which a start-up’s equity funding is being spent.
Using the burn rate, the implied cash runway can be estimated – in other words, the number of months that a business can continue operating until it runs out of cash.
To sustain operations, the start-up must either become profitable or, more commonly, raise equity financing from outside investors before the cash on hand runs out.
Since it could take several years for the start-up to turn a profit, the burn rate provides insights as to how much funding a start-up will need, as well as when it will need that funding.
By tracking the metric, a management team can quantify the number of months they have left to either turn cash flow positive or raise additional equity or debt financing.
In particular, the metric is closely tracked by early-stage start-ups that, in all likelihood, are operating at steep losses.
How to Calculate Burn Rate
The global crisis has been felt everywhere and this means that for a Zimbabwean founder that wanted to raise money from American or European founders, this just got a bit more difficult. Money is not flowing like water, like it used to in these markets. So founders need to be more conservative with the cash they have on hand and manage their runway so that they can make it out of this precarious period.
During the time of plenty, companies such as Uber gave discounts to use their products so that they could acquire more customers and become more popular. This strategy worked for years and other companies have done similar. But now that things are not as happy go lucky, this strategy is no longer feasible.
As a founder you need to manage how you spend your funds and not make any unnecessary hires. Its already hard being a founder but now you must play gymnastics as well. Funding that was planned to last year should now be made to last 18 months because there is really no telling what is in store around the corner. Spending on luxuries and frivolous items that do not add value, or make no dent to the bottom line need to be curtailed for at least the first half of 2023.
Zimbabwean founders are also going into an election year and this period traditionally causes people to take a wait and see mind-set as they real the manifestos of the aspiring candidates. Founders must be aware of this dynamic and plan accordingly.
These last few years have definitely exhibited the meaning of a VUCA (Volatility, Uncertainty, Complexity and Ambiguity) environment.
Founders need to be agile and able to make decisions on a whim in 2023. This is because we live in a VUCA environment and the knowledge/information that you have today, may not be worth much in 24 hours. Goal posts are being constantly shifted and founders must match that energy.
Bloated teams must become a thing of the past and every member must add value to the organisation because they could contribute to the demise of the company. Especially as funding will become more difficult to acquire. Global giants like Facebook and Stripe have experienced massive layoffs over the past few months because they projected massive growth over the next few quarters and now that has not been realised.
Fortunately, it is much easier to dismiss a worker in the USA than it is in Zimbabwe or South Africa because of labour law, therefore hiring is very important in these jurisdictions.
Founders should also have multiple methods to make revenue, just in case their cash cow gets affected by something crazy like a ‘War’ for example. The benefit of being a startup is that you can quickly make decisions and change at a whim given the situation in front of you. So founders must be agile enough to pivot as the environment is in constant flux.
Value Your 1st Customers
Founders need to really appreciate the customers that got them to this point and not only send beautiful letters but also take action to prove how much they appreciate how these customers got them through the tough times. These valuable customers are advocates and cheerleaders for your business and will talk about you in rooms that you cannot enter.
The action can take the form of exclusivity and 1st preference when new products are launched as well as potential discounts. It is generally easier to keep a customer than to acquire a new one, so it’s vital for founders to maintain these positive relationships.
Whilst the list is not exhaustive, it gives a guideline of things that founders can do to remain sustainable. Any startup that is able to execute them will be better off as we head into economic headwinds.
Simba Mswaka is the Programs and Partnerships Manager of Tech Hub Harare
Startup Mentor and Advisor
He can be reached on Twitter: @DrMswagga and on Linkedin Email: email@example.com