The economic impact of the COVID-19 pandemic has unfortunately threatened the continued success of startups across a range of industries. Fintech is no exception. Lack of funding is becoming a significant problem for many young companies.
However, while it’s important to accept the reality of this situation, it’s also important to remember that it is definitely possible for fintech startups to survive this downturn. The following examples illustrate several of the ways they may do so. Keep them in mind if you’re managing a fintech startup right now.
Focus on Smart Spending
Startups always need to spend their budgets wisely. That said, this principle is currently more important than ever.
Making cuts and reducing expenses is never easy, but it’s certainly easier than seeing your company disappear. This process also gives you a chance to flex your creative muscles.
For example, perhaps you can significantly limit your marketing budget, tasking your marketing team to come up with creative ways to spread the word about your brand while spending less. As long as you manage your expectations and don’t demand more of anyone than they can reasonably deliver, challenging your employees in this way could result in creative ideas that you can continue to benefit from once the economy stabilizes.
Other possible ways to make your budget work include:
- Renegotiating supplier contracts.
- Using invoice factoring. This is a way to obtain an advance on a payment owed to you, by selling the invoice to the factoring company. It’s not without risks, however, so be careful with this option.
- Obtaining a government grant.
- Scaling back perks like gym memberships, free lunch, and other side benefits.
- As a last-ditch effort when you’ve exhausted other avenues, you can reduce salaries. You can offset this by offering things like commission on future revenue, stock options, or future bonuses.
Partner with Traditional Banks
This blog has often pointed out that partnerships between small fintech startups and established financial institutions can result in mutually beneficial relationships. Traditional banks get to leverage the innovative technologies and solutions a fintech offers. Fintechs get support navigating the regulations that naturally affect financial service providers, as well as access to a large customer base.
They also get financial support. Although organizations across virtually all industries have struggled during the COVID-19 pandemic, larger banks have certainly been more resilient than startups with substantially less cash. Now may be the best time for fintech startups to seek relationships with traditional financial institutions.
Focus on the Now
In the long run, it’s important for fintech startups to consistently focus on innovation and future developments. However, given the current situation, that may not be a practical approach. Right now, it’s far more important to focus on the present: survival is key. Focusing on what you can control in the immediate future will help you avoid spending poorly. It can also mobilize your team. When you devote your attention to what you can control, you’re more motivated and less likely to be overwhelmed.
Address the Need
Fintech products are helping many consumers and organizations during the COVID-19 economic downturn. Some companies are even benefiting from the crisis. Stripe, for example, announced in mid-April that it had raised $600 million.
As the pandemic forces people to stay home, there is clearly strong demand for contactless payments and digital banking. Businesses that never thought about selling their products online are considering it. Even small retail businesses that never accepted credit cards in their brick-and-mortar locations may be more inclined to do so now—some people are wary about using cash that’s passed from hand to hand. Fintech companies were said to have received a “stamp of approval” when a few digital lenders got government permission to provide Payment Protection Program (PPP) loans, including PayPal, Square, and Intuit.
The point to remember here is that many fintech companies may be positioned to weather this storm and even thrive afterwards, especially if they can recognize opportunities and pivot to fulfill unmet needs.
Running a successful startup always requires being able to identify opportunities when they arise. Right now, people and companies across the world are struggling financially, and fintech companies can focus on helping them in a variety of ways.
For example, fintech lending firms can help other small business owners acquire loans to keep their operations afloat. They can help companies pay their employees remotely. They can facilitate remote payments between patients and their doctors. They can allow consumers to perform a range of banking tasks remotely.
Those are merely a few examples. The point is, even in spite of the dire economic situation, there are still opportunities for fintech companies—and the technologies and products they offer will be in demand after the crisis subsides.