Business Insight

2020 Q2 GDP DATA POINTS TOWARDS AN ECONOMIC RECESSION; HOW CAN STARTUPS NAVIGATE THROUGH THIS TRYING TIMES

Nigeria’s National Bureau of Statistics recently released 2020 Q2 GDP data. This data showed a contraction of 6.1% when compared with last year’s real GDP. This contraction is the steepest seen since 2004 and an end to three years of feeble but steady growth post the 2017 recession.
The decline is mostly attributable to a significantly lower level of both domestic and international economic activity during the quarter. This is as a result of nationwide shutdown efforts aimed at containing the COVID-19 pandemic coupled with the slowdown in crude oil production to 1.81million barrel per day, which is the lowest level of Nigeria’s crude oil production since the Niger-Delta militant-inflicted shutdown in 2016-17.

According to experts (Bloomberg’s Economist), the GDP is expected to contract again in the third quarter. However, at a slower rate because steeper production cuts will be required in August and September to reach full OPEC compliance. Similarly, a weaker Naira and ongoing foreign-exchange restrictions will continue to weigh down the growth of the non-oil sector
What happens in the next downturn will be particularly interesting because so many companies founded after the previous (2017) economic recession have not yet had to navigate through a slump.
In this article, we seek to explain how startups can position themselves to survive the lingering recession and not be swept by it.

1. Know Your Exposure
One measure proactive founders can take is to identify areas of vulnerability and, if possible, de-emphasize or off-load such areas before it affects the entire business.
Reducing exposure to those vulnerable segments or diversifying into other sectors could help avoid trouble in the long run.

2. Extend The Runway
Another mitigating step is to reduce future financing risk. Companies don’t want to be in a position of needing to raise capital during an extended downturn.
This can be avoided by pre-emptively reducing the cash burn rate, becoming cash generative, or by raising new funds when times are still good.

3. Try to Stick To The Long-Term Plan
I encourage founders not to lose focus on their long-term goals. In good times and bad, founders shouldn’t let external forces unnecessarily influence their path.
This is a tough one to stick to when conditions deteriorate, but staying focused on long-term goals can help business owners have a frame of reference to measure short-term decisions.

4. Stay Disciplined
Staying disciplined is not restricted to times of economic recession: Discipline should never go out of style. Whether with costs, forecasting, or hiring, establishing a culture of discipline for all conditions is helpful, smart, and prudent.
With an established culture of discipline, executives will be in a better position for any shock to the business.

In Conclusion
Generally, big companies and small companies alike all have to navigate through rough conditions at some point or another. The difference between failure and success often comes down to who is best prepared.

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