Impact Of Downtrend On Startups and Strategies to Succeed.

Last Updated on August 31, 2022

What Is A Downtrend?

A downtrend is a serious issue often faced by businesses. Small businesses get affected by it more than others. A downtrend is a change in the demand for stocks in which the investors are not interested in buying the stocks of a business in fact they want to sell their existing stocks. 

A downtrend is a result of a startup’s business activities and security. Most startups surrender to the downtrend. A startup can face a reduction in their cash flows, and demand loss, they may be forced to reduce their staffing, and also be forced to limit their marketing.

Startups suffer big time in a downtrend but they do have an opportunity to make changes and stay afloat. Implementation of key strategies can save a startup from succumbing to the imp[act of a downtrend.

Studies have shown that since 1900 every downtrend has lasted 15 months on average. So businesses need to make sure to keep themselves alive for the mentioned duration.

Experts’ Opinions

The downtrend is a huge threat hovering over industries since the outbreak of covid-19. As per CNBC, 8 out of 10 startups are expecting a downtrend in 2022. The latest report from the same website shows that the Q3 of 2022 small business Confidence Index has reduced to 42 which is 4 points lower than the previous quarter and this is also the lowest ever score.

As per Dallas Fed, the GDP of the US faced a decrease of 1.6% in the first quarter of 2022 and 0.9% in the second quarter of 2022. 

As the downtrend may or may not occur in 2022, it is better to know the impact and strategies to deal with them. In this blog, you will find the challenges faced by startups during downtrends. We will also focus on the strategies startups can adopt to overcome the downtrends. A well-discussed plan on the practices a startup can focus on will also be discussed in this article.

Impact Of Downtrend On StartUps

A downtrend affects startups to a heavy extent and many startups fail to make a comeback. A downtrend can impact a startup in many ways like-

• Reduction In Cash Flow- There is a common issue in startups that they operate on very tight cash flow. As a startup generating heavy funding is difficult they need to follow this method of tight cash flow. If a delay in payment occurs from the customer’s end the whole cash flow cycle gets disturbed. During a downtrend, companies may face a lack of funding and it will automatically reduce the cash flow.

• Loss Of Demand- During downtrends, customers often opt for limiting their purchase or even completely stopping it. If a startup company’s target businesses or clients go out of business then the startup might as well succumb to losses. Loss of demand can create a heavy impact on the startup and its business activities. 

• Reduction In Profits- There is a common trait between customers and business owners that both limit their spending during downtrends. So a startup whose financial resource is dependent on sales is going to suffer big time. Customers limiting their expenses can create difficulties for startups in generating their revenue. A loss in revenue is all a loss in profits.

• Credit Crunch- Not just customers and business owners limit their expenses. Lenders or investors may also reduce their outflowing cash. This creates more pressure for startups as it makes the credit area a huge challenge.

• Downgoing Stock Prices- Reduction in profits, and cash flow reflects on the financial reports of a startup. This will directly impact the stock prices of the business. The impact can be as heavy as the dividends can disappear.

• Downgrading Product Or Service Quality- The worst impact of a downtrend is the downgrade of product quality. Due to limited resources and funding startups are often required to decline the quality of their product or service.

• Reduction In Staffing And Productivity- Heavy losses in revenue of a startup create a shortage of financial resources. This shortage makes the reduction in staffing inevitable. Startups look to minimize their expenses in every possible way. Reducing staff is the most common and easy way to control expenses. The staff reduction will reduce productivity as well.

• Restricting Promotional Activities- One of the biggest tools for businesses to gain high sales and revenue is marketing. Although it is quite an impactful and effective practice, startups are forced to restrict all types of promotional activities in a downtrend.

Strategies Startups can Adopt In the Face Of Downtrend

Downtrend paralyzes the business processing of startups. But a startup can overcome the impact of a downtrend and minimize the losses to a certain extent by adopting a few key strategies like- 

1. Observe The Signs

The early stage of a downtrend is the best time to implement solutions or apply strategies to overcome the challenges. Observing economic changes and financial panic among consumers can help in identifying the possibility of a downtrend.

• Economic Change- Ups and downs in the stock market are early signs of a downtrend.
• Financial Panic- Customers will react in financial panic during hard times. The abnormal dips in sales are big red signals before a downtrend.

Observing the signs early can offer startups time to strategize and minimize the impacts of the possible downtrend.

2. Flexible Agreements

According to experts, flexible contracts offer businesses to deal with downtrends without completely transforming their businesses. As startups might find it difficult in transforming their business, flexible agreements are a better solution.

The flexible agreements allow startups to plan for the loss of business and areas to make up for costs.

3. Invest In Promotional Activities

Startups often completely stop their marketing campaigns during downtrends. But the downtrend is not affecting a single business so many businesses opt for stopping their marketing efforts. In this scenario, a startup can gain huge benefits by investing in marketing.

• Customer Trust- During a downtrend, if a startup promotes itself customers may believe that the business is stable in hard times as well. It will create trust between the customer and the business organization.

• Low Costs- As most businesses opt for stopping marketing practices, the cost of advertising drops. So a startup can avail a huge marketing opportunity and that too within a low cost.

• High Sales- With marketing, a startup can have visibility during the tough times of a downtrend. This will directly impact the sales of the company.

A startup can stay on customers’ top minds during the silence of competitors with promotional activities during downtrends. 

4. Accelerate Training

Excelling the skills of employees can offer huge benefits to a startup. As a downtrend can impact and force the staff to be reduced at a startup keeping the high-performing employees ready with all essential skills and training can be a game changer. As the production damage will be minimized if employees have the essential skills.

5. Enhance Client Relationship

The downtrend is a situation where existing clients will require more attention. Selling products or services to existing customers is a lot cheaper than selling to new ones.

In order to enhance client relationships startups can-

• Concentrate on top clients
• Observe competitor’s clients
• Receive feedback from own clients

In a downtrend, startups must retain existing clients and enhance their relationships to minimize the possible threats.

6. Downsizing Inventory

Inventory is a costly affair. In downtrends maintaining an inventory can be really challenging. For startups, it is an ideal way to get rid of the extra inventory and invest in the high selling products or services. 

7. Manage Cash Flow

As a downtrend directly impacts the cash flow of a startup, it is important to manage cash flow for startups. There are a few steps in managing cash flow in an improved manner for startups-

• • Paying down debts
  • Collect in an aggressive approach
  • Set periodic KPIs to monitor the financial stability

Managing the cash flow allows startups to strategize more accurately during a downtrend.

8. Set New Goals

A downtrend may force a startup to change its business practices so it is better to redesign the process with new goals. 

Once the goals are decided a startup must inform the stakeholders and if the stakeholders are not agreeing, the startup must convince them of the reason for new goals and benefits.

9. Automation

One of the most innovative approaches is automation. Although setting up automation processes in a startup can be challenging due to its costly nature of it. 

Automation can serve a startup by completing repetitive tasks more efficiently and effectively. It will be beneficial if the startup needs to reduce staffing due to a downtrend.

10. Ensuring Product Quality

Due to the downtrend, many companies may opt for compromising the quality of their product or services. It will straight away impact customer loyalty and experience.

A startup must ensure that the product or service quality stays ahead of its rivals. It will ensure better customer experience and relationships.

Startups Can Minimize The Threat Of Downtrend With Apps

Due to digitalization, every business organization of all sizes has its own apps for enhanced business operation. A correctly designed app according to the business process can lead a startup to new heights even in a downtrend.

In case you own a startup or are planning to start a startup you must invest in developing an app, specifically customized for your business. OyeLabs can offer its services to help you create top-notch and next-gen technology-loaded custom applications.

Our developed applications are always focused on solving problems for our clients. We focus on business needs and analyze the industry before designing your app. 

We make apps capable of delivering not only in mitigating your current problems but also possible future obstacles in making your startup one of the industry giants. 

We have experience in collaborating with different businesses across the industries and that too worldwide, and we have delivered our clients with satisfactory solutions.

Our developed products are highly flexible so in case even in the future during downtrends you can implement changes and add features as per requirement. We also serve in updating your existing apps with features essential to survive a possible downtrend.

The Bottom Line

The above discussion on impacts and strategies to minimize the threats proves that the downtrend is a serious topic. It can destroy startups or even small businesses. 

On one hand, startups can be destroyed due to downtrends on the other hand it also offers golden opportunities. Creating customer trust and brand reputation with the reduced costs of advertising can offer high sales.

The above discussion clears the point that startups need to be attentive to small details regarding factors and areas of the business that are sensitive to downtrends.

Proper observation, strategizing and following not only can help a startup to stay afloat but also gain more opportunities and high revenue in the downtrend.

Frequently Asked Questions (FAQs)