Fixed costs hit startups harder than anything else. Full-time engineers and office spaces, for instance – use up cash regardless of their utilization. This downturn is making founders acutely aware of this reality.
Here’s a common scenario I have observed a few times: Founders realize that their idea isn’t gaining traction and decide to pivot. Pivot work is largely research work and needs no engineers (or max 1 engineer to build quick prototypes). Fearing demotivation & panic amongst employees, founders don’t share their new approach and let engineers continue building irrelevant things. The company unnecessarily burns precious cash every month and risks untimely demise.
What is the solution?
1. Avoid hiring full-time staff to develop the initial product. Opt for outsourcing using a ‘play and pause’ model.
Some founders argue that outsourcing compromises quality, especially for a stellar product launch. However, unless your sole differentiator is UX (e.g. superhuman) or a patentable technology, outsourcing is usually more beneficial. Hire internally once you’ve achieved reasonable revenue or identified early signs of product-market fit.
Numerous firms in Tier 2/ 3 cities offer quality services often cheaper than employing staff in metropolitan areas. While finding the right partner might pose a challenge, it’s worth the effort for the control it offers over cash flow.
2. Avoid leasing office space. Embrace remote work or utilize co-working spaces on short-term contracts.
3. Minimize recurring expenses, particularly those not directly linked to generating revenue.
What other ways can startups extend their runway till they figure out what is working? Share them in the comments.
