The Autumn Statement and the accompanying report from the Office for Budget Responsibility paint a grim portrait of the UK's economy.
There are several implications of this for founders, but it is particularly relevant (and stressful) for founders whose business is not yet at the stage where it can stand alone.
What does it mean to extend your runway?
Extending your runway in a business context means increasing the amount of time your startup can operate without additional funding.
This typically involves reducing costs, boosting revenue, or securing more funding to prolong the business's sustainability.
We are going to talk about how you can extend your runway with tips from Lynne Blakey, a partner at advisory firm Evelyn:
- Understand your runway
- Evaluate your costs
- Look at your staff
- Look for support
- Consider alternative funding
There has been a major shift in the way we grow businesses over the last decade – partly fuelled by low interest rates and the ready availability of cheap money – it has become an accepted (almost expected) model to aim for growth-first and profits (much) later. It’s an approach favoured by digital scale-ups and means many fairly substantial businesses, at least in terms of revenue and headcount, rely on investors to keep them afloat.
But in an era where the flow of investments is receding, it’s no longer so easy to keep going back for another round of investment. The fear of running out of cash looms ever larger. And “out of cash” remains the rock upon which most businesses that fail eventually crash.
Lynne Blakey confirms there has been a drop in investment activity.
“Q3 saw a marked reduction in investment activity, as investors reacted to the current economic climate and political uncertainty,” she says.
Blakey adds that this, combined with the backdrop of rising costs and interest rates, supply chain issues and escalating energy bills, is leading founders to start questioning how long they have left.
Lynne Blakey on extending your runway
Blakey shared some of her experience and tips for extending your runway
Know where you stand
The first step to extending a startup's runway is to understand how long it currently is. This knowledge allows founders to plan whether the existing runway will be enough until the business becomes profitable or secures the next funding round.
Blakey suggests there may be as many business owners thinking about the warning lights flashing at the end of their runway as airline pilots.
“More founders are asking what steps they need take to extend runway and improve their mid-term viability,” she says.
“Escalating costs and energy prices may mean your runway has significantly shrunk from what it was a few months ago,” she advises, thus making regular updates to this calculation vital.
“Ensure you have a detailed profit and loss and cash flow forecast that you can easily sensitise. This will allow you to model your runway under various scenarios and help you identify ways to limit your cash burn.”
Keep an eye on costs
“Are your costs essential to the ongoing operation of your business, or can they be reduced or eliminated altogether?” asks Blakey.
Closely examine all costs for potential efficiencies or alternative methods to save money.
This could include:
- renegotiating with suppliers,
- limiting entertaining & travel spend,
- reducing resource use,
- replacing costly providers with cheaper alternatives.
“Also consider whether there are opportunities to partner with other businesses to promote each other’s products and services, or to combine your offering to appeal to a wider customer base, or share resources such as office space.”
Look to the people first
Staff are usually one of the biggest costs within most organisations. But, says Blakey, staff are also your biggest asset. As a scale-up, more so than an early stage start-up, you may not be able to reduce staff numbers significantly without impacting operations.
“That said, put a hold on recruitment and new hires for a while. Recruitment and training new staff are expensive and put a strain on resources.You should focus on retention of, and maximising the contribution from, your existing team.”
Diversifying Offerings:
Review your product or service line and consider diversifying into new markets to spread risk.
“While developing new products takes time and energy, think about how you can adapt existing products and services to appeal to new markets and attract new customers.”
Here Blakey says there are lessons from the pandemic. “During Covid, the businesses that thrived were those able to identify a need and adapt their offering to expand into new markets.”
It’s good to talk
Remember, you're not alone. Engaging with fellow founders, such as the Helm community, and communicating with your investors can be immensely beneficial.
Open communication builds confidence in your business and makes future investment more likely:
“Investors expect a level of losses and if you can establish you have a credible and capable management team, with well thought out projections and a proactive plan, it builds confidence in the business, comfort around future investment and makes it more likely they will continue to support the business.”
Look for alternatives
While investment activity is decreasing, it might be worthwhile to explore different funding options. Crowdfunding could be an alternative.
“It hasn’t seen as significant a reduction as other sources of equity funding. Investors may also be more likely to invest in convertible debt funding, as opposed to equity while there are also a range innovative debt funding solutions in the market that can be linked to your working capital cycle,” says Blakey.
Also, consider grants, tax reliefs, and other incentives that could be available to your business.
“The recent HMRC crackdown on fraudulent claims means it is important to ensure that any claim you make are correct and clearly supportable,” says Blakey. “Helpfully, most R&D tax experts offer contingent fees, meaning you don’t pay a penny unless they are able to make a successful claim.”
Lastly, Blakey suggests reaching out to any local enterprise partnership and growth hubs to investigate what support and funding may be available to at a local level.
If there was one over-riding message in the Autumn Statement, it was the idea that we need a dose of measured, calm growth – as opposed to the madcap “growth, growth, growth” agenda under Lis Truss. And there are parallels, suggests Blakey, for founders.
“Any measures you take must be assessed to make sure they don’t stifle growth unnecessarily. It is a balancing act. There may be a need to sacrifice overly-aggressive expansion plans, in favour of a more measured approach to match the current economic climate.”
What does it mean to extend your runway?
Extending your runway in a business context means increasing the amount of time your startup can operate without additional funding.
This typically involves reducing costs, boosting revenue, or securing more funding to prolong the business's sustainability.
How do I extend my cash runway?
You can extend your cash runway by:
- Reducing operational costs through cost-effective strategies like renegotiating supplier contracts, limiting resource usage, or implementing more efficient business processes.
- Increasing revenue: Boost sales through marketing efforts, improve product offerings, or diversify into new markets.
- Securing more funding: This can be achieved through new investment rounds, loans, crowdfunding, or grants.
- Improving cash flow management: This includes efficient management of accounts receivable and payable, stock control, and prudent investment of excess cash.
- Reviewing and adjusting your business model: It might be time to reconsider how your business makes money or reevaluate your market strategies.
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