Tips For Navigating Economic Inflation as a Start-up

Startups often face funding crises, especially during market meltdowns or inflation. Investors prefer firms with proven track records of high returns and strong brands, making funding challenging. To tackle economic inflation successfully, consider the following tips: 

Innovation and product differentiation: Customer loyalty is crucial, and their preferences evolve with trends and technology. Continuous innovation and improvement in products and services are key. During economic crises, a unique value proposition is essential for a startup to stand out. Tailoring products to specific customer needs and leveraging technology can earn loyalty. Startups are known to either launch new products or improve on the existing ones by way of disruption.

Case Study: NIBSS Instant Transfer (NIP): In the financial sector, competition is fierce. Fintech companies, banks, and MMOs offer similar products like NIP. Recently, a Fintech company relaunched the service with enhanced security features, KYC and alert notifications to address the identified gap in the product, thereby earning customer preference and loyalty. This innovative approach showcases the importance of adapting to customer needs during challenging economic times.

Navigating economic inflation requires strategic thinking and adapting to changing customer demands. By focusing on innovation, differentiation, and customer-centric approaches, startups can thrive even in challenging economic landscapes.

Personalized and non-conventional approach to customer engagement using an expansive Distribution Network: Leveraging a personalized touch in customer engagement is key for businesses today. Pairing a great product with a robust Sales Team can be a game-changer in a competitive market. Embracing a non-conventional approach through contract-based Sales Team members has proven to drive more aggressive sales and active customer engagement than the traditional approach of using full staff on salary. 

By incentivizing salespersons with commissions instead of fixed salaries, companies ignite a sense of ownership and drive in their team. This model fosters goal-oriented, self-driven individuals who thrive on performance-based rewards. It also encourages healthy internal competition among the sales associates and fuels productivity that results in enhanced customer engagement. This innovative sales model, commonly seen in Fintech firms, offers scalability, cost efficiency, and fosters stronger customer relationships. Creating a network of associates within communities ensures trust, efficient communication, proximity to customers, and rapid issue resolution and these are the essential elements for customer satisfaction. 

Establishing a strong Sales Team and expansive Distribution Network can be instrumental for startups to penetrate markets deeply and navigate economic challenges successfully. 

Implementing flexible work arrangements: This has been a significant learning from the Covid-19 Pandemic. The shift towards remote work or hybrid options has not only resulted in substantial cost savings but has also proven to enhance employees’ productivity and morale. Particularly in bustling cities with traffic congestion and high property costs, this model offers a valuable solution. Startups looking to drive cost efficiency and optimize productivity should consider exploring these flexible work options.

Effective inventory management:Inventory management is crucial for businesses to manage working capital efficiently and ensure resource optimization. Balancing the right mix of raw materials and stock is essential to avoid redundancies, excess stock, or idle capacity. In times of economic inflation marked by uncertainties and fluctuating prices, making short to medium-term decisions is key to managing market risks. Maintaining optimal inventory levels enables businesses to renegotiate prices and sales terms more frequently, aligning with evolving market dynamics. Striking the right balance in stock levels through realistic projections, planning, and continuous monitoring of sales leads and production timelines is essential for success. 

Avoiding excessive debt burden: This is crucial in the current economic climate with soaring interest rates affecting businesses’ loan repayments. To stay afloat during crises, startups must carefully evaluate debt options, opting for the least costly funding with flexible repayment plans. Generating a net margin higher than the cost of funds is vital for business survival.

Effective budgeting and teamwork: Having a competent team is key for startups to mitigate risks of overconcentration. Building a diverse team with varied skill sets ensures sustainable growth and effective risk management. Discipline in areas like budgeting and duty segregation is essential for long-term success. Startups should invest in critical roles like finance and risk management for robust governance and business sustainability. Remember, teamwork is the linchpin for growth and success. 

Partnership: As costs of production rise during economic inflation, prices of goods and services also increase, impacting customers’ purchasing power. Startups can mitigate this by forming sustainable partnerships with other firms, creating synergy and a stronger market force. Collaboration helps in keeping production costs low and boosting sales revenue by selling more units. For instance, several startups have leveraged partnerships with the likes of Moniepoint in Nigeria and Mpesa in Kenya to scale their businesses.

Adherence to regulatory requirements:During economic crises, startups often diversify without obtaining the required operating licenses. It’s crucial to adhere to regulatory requirements, secure the necessary licenses, and ensure strict compliance to avoid sanctions that could lead to financial burdens or business closure. Operating without approvals can be risky for startups and it should be avoided.

Effective cashflow management is vital for startups: Tracking cash inflows and outflows helps in making realistic projections and investing idle funds wisely. Startups can explore short-term investment options like time deposits, mutual funds, and stocks to generate additional revenue during economic inflation. Consulting investment experts can help optimize returns without impacting working capital.

Navigating economic inflation as a startup requires foresight, innovation, and technology. Gathering market insights frequently aids in validating business assumptions and making informed decisions. Leveraging innovation and technology to deliver products with compelling value propositions is essential for startups to stay ahead during tough times. 

M. Kolawole Fajimokun

Business Leader & Consultant