5 Essential Measures Startups can Take to Navigate the Cost of Living Crisis

The life of a startup is typically precarious enough without the added burden of the ongoing cost-of-living crisis.

Rising inflation and a series of confounding circumstances surrounding the fallout from the Covid-19 pandemic and geopolitical conflicts have left businesses and consumers alike struggling to manage their finances, but what can be done to alleviate this situation? 

It’s certain that businesses will be facing fresh challenges on the road ahead–particularly startups that are likely to be more dependent on securing as many revenue streams as possible at these delicate early stages. 

Rising energy costs mean that cash flow forecasts are liable to change considerably over time, and businesses may need to manage their gas and electricity usage to avoid losing more money. 

(Image: Office for National Statistics)

As we can see from ONS data, the final quarter of 2022 saw employee pay fall in real terms, an increase in redundancy rates, and an increase in the number of employees seeking to take on extra jobs to cover their personal expenses. 

These statistics show that both businesses and employees are struggling to stay afloat in such testing times and that more proactive approaches must be taken to better navigate the crisis. 

But what can be done for startups seeking to manage their way through the cost of living crisis? Let’s take a look at some key measures that can be taken for instant results: 

1. Review and Re-Review Your Expenses

While this may seem like it’s stating the obvious, things change quickly in the midst of a cost-of-living crisis, and the expenses that you’re accumulating in one month can be different in another. 

With this in mind, it’s essential that you review your expenses each month, and keep an eagle eye out for instances where trends appear to be emerging for certain costs–whether they’re positive or negative ones. 

Can you establish a cheaper supply chain? Could substitute materials maintain your product’s quality at a lower cost? Is new machinery making a difference in your energy bills? 

As a startup, it’s essential that you seek to win consumer trust, and this means that it’s important to avoid being seen to skimp on quality as a result of the crisis, but making intelligent decisions to mitigate costs can be a great way of ensuring your long-term viability. 

2. Consider New Flexibility Measures

Does your startup really need an office?

While it may seem important to maintain a physical location, it can be an excellent cost-saving move to transition into fully remote workplaces while the cost-of-living crisis is impacting energy costs and causing expenses to eat further into budgets. 

What’s more is that the UK government has a tax relief program for employees who are fully remote, meaning that you won’t be passing your energy bill onto your staff by enabling them to work remotely. 

Furthermore, digital workspaces can be every bit as productive and engaging as in-office environments.

Virtual reality collaboration solutions can even provide an insight into the future of productivity for businesses, and embracing the technology now can be an innovative way to future-proof your company at a time when change is needed. 

3. Be Transparent About Price Increases

Because of the aggressive levels of inflation today, one option that can feel inevitable is to increase your costs to avoid losing out on revenue. 

While this can be a difficult balancing act for startups that want to avoid alienating customers early on, it can pay to offer some transparency about the reasons for the price increase.

Although some are likely to be disappointed, others will appreciate that you’re open and honest about your challenges and may even be more inclined to use your business because they see it as an opportunity to help out. 

It’s also worth noting that you won’t be alone in increasing prices.

According to the British Chambers of Commerce, some 75% of businesses are set to increase their prices as a means of mitigating rising utility and wholesale costs. 

4. Offer an Olive Branch to Customers With a Budget Product Line

Although you may be looking at increasing prices to cover your rising expenses, this doesn’t mean that you can’t offer low-cost products to customers.

The cost-of-living crisis could be an opportunity to launch a budget product line with streamlined features or functions. 

For SaaS businesses, for example, this could involve launching a half-price ‘lite’ version of your software or releasing a product that’s far cheaper to manufacture that could serve as an introduction to your business and encourage more customer retention. 

5. Seek to Support Your Employees

This isn’t simply a case of ‘happy employees are productive employees.’ While keeping employees supported is a key means of ensuring that they continue to maximize their output, it’s also important to ensure that they’re coping well despite the challenges they face. 

Checking in on your employees on a regular basis is vital in spotting signs of stress or discomfort in the current situation.

Although it can be difficult to offer pay increases to support them at this time, you can seek to help them to save money by working from home and seeking to set up more activity days within the company to ease stress and encourage team building. 

Although the cost-of-living crisis is having a profound impact on startups around the world, the businesses that successfully navigate this period of uncertainty are likely to thrive as the economic headwinds subside.

In building a crisis-proof startup, you can build on your sustainable foundations.