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How Startups Should Prepare for a Crisis

Nobody likes surprises. Human beings crave certainty and suffer stress when they find themselves in unpredictable situations. Meanwhile, in the world of economics and finance, uncertainty is often considered the enemy of growth.

Unfortunately, sudden and unplanned events such as a crisis are inevitable. It can be a major problem experienced on a global scale or something that ambushes you in your own backyard. The cause can be internal or external factors. Either way, it’s unlikely you’ll see it coming.

Founders must learn to live with the possibility of a crisis and prepare for the unexpected. This article looks at how a startup can get in a good position to confront the challenge when it comes.

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Responding to global crises

A couple of years back, we were in the midst of a rapidly expanding, largely unknown pandemic without much idea of how the world would emerge. It was unprecedented in its speed and devastation. Still, as we heard from some GGV portfolio companies, founders had to find ways to navigate their businesses through the turmoil. 

At the time, wise counsel from experts like Jixun Foo, Managing Partner, GGV Capital, and Brian Gu of XPENG Motors offered encouragement to founders. The notion that a crisis can present an opportunity for innovation – as expressed by organisations like McKinsey ­– is appealing. Research backs this up with an Ewing Marion Kauffman Foundation report from 2009 revealing that over half of Fortune 500 firms began during a recession or bear market. 

Today, the world faces further uncertainty with tumultuous geopolitical events putting global supply chains to the test and stoking inflation. For instance, many tech companies around the world relied on IT outsourcing to Ukraine before tragic events unfolded there. Radical fluctuations in the value of crypto assets and extreme weather events likely caused by climate change add to the list of calamities. 

Financial upheavals and natural disasters aren’t the only types of problems affecting a business. It may be something contained and particular to your startup, such as a crisis relating to personnel or a workplace incident, technology issues (think cyber attack), or a malevolent act such as sabotage. 

So how do you prepare for a crisis? 

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Make a plan

Don’t wait for a crisis to hit before you develop a response. Planning for the unknown may not always be able to prevent a problem, but it will enable your startup to react in a more agile manner if bad stuff does happen. A “hope for the best, prepare for the worst” approach requires a risk assessment. Consider different crisis scenarios of various levels of severity. Here are some practical ways to deal with various types of business emergencies

Harvest opinions and ideas from different parts of your business – input from IT, finance and HR and marketing will all have a bearing as they can identify the most vulnerable areas or processes.

An article in Harvard Business Review has this advice: “Three ways companies and workers can prepare include learning to stop (even when your instinct is to keep going along a path that isn’t working); taking the time to cycle through doing, monitoring, and diagnosing the problem; and knowing a little about everyone else’s jobs.”

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Create a dedicated crisis team

Nominate a crisis leader and crisis team. These will be the people running your “war room” in a crisis. Everyone should understand their responsibilities and critical priorities ahead of time. Startups tend to be lean operations, but a founder leading a crisis team raises questions – how will this affect running day-to-day operations, for example? As this PWC article explains, “If senior leaders are focusing only on fighting fires, the fires will take precedent, and nothing else will get done.”

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The benefits of being crisis-aware 

Like anything in life, spending sleepless nights worrying about “what if?” will likely stifle risk-taking and increase anxiety. On the other hand, knowing that you’ve invested time planning potential responses and having a strategy and team in place will help you rest easy and confidently propel your business to new heights.

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