A fintech founder’s guide to surviving the downturn

When it comes to economic downturns, I’ve been around the block a few times. Railsr, formerly Railsbank, is my third successful startup and with each of my companies I have faced a downturn including the dot.com bubble, the 2008 crash and now a post-pandemic crisis.

So, from what is often a painful experience, these are my top tips for founders and their management teams on how to survive the current downturn and period of financial uncertainty.

Cash burn

Number one, stay super focused on cash burn. Make sure you have 12 to 18 months of cash in the bank. Cash burn must be the first priority, as companies with short runways will have very few options when the crisis hits.

Track metrics such as months to profitability, months of runway, business as usual cash burn, exceptional cash burn items and revenue required for 18 months of runway.

Capital efficiency

The second is capital efficiency. Dive into where the money is spent and why. Not a penny should be wasted on dubious, redundant or ego projects. Direct the cash to the projects and activities that will generate income and efficiency.

Track with capital efficiency metrics like $ burn per new $ ARR; and $ARR per head.

Existing customers

Third, stay laser-focused on existing customers and relationships, as they will see you through this downturn. Your customers are central to your survival plans, so don’t be tempted to put them on the back burner, hoping they’ll take care of themselves.

Now is the time you need to stay very close to those who buy your services and products. Track with metrics such as Transactional/Support NPS and Relationship NPS.

Product

Fourth, its product, product and product. Make your product operationally excellent. And remove any vanity features, they gobble up cash and don’t help the bottom line.

Track metrics like feature usage, $ARR per feature, platform uptime, and support tickets per feature.

Forget growth

As for growth, forget it for now. Investors used to love to talk about growth, lots of blue skies and big ambitions. In this environment, it is a luxury. Conversations are now focused on three things: efficiency, profitability and survival; growth is not a multiplier of stock valuation in the markets at the moment.

Growth is currently massively discounted as a value attribute, because they would rather have the efficiency, profitability and survivability, and better cash burn. And you need to get better at how you compete if you haven’t already.

As for M&A activity, it is going to increase. It is almost an inevitable consequence of tough times that companies are put together to create a stronger single entity and the survivors look to pick the better parts of companies that are on their way out.

A bump in the road for fintech

As for how the fintech industry will shape up in 2022, I’m sure this is just a bump in the road. We have only just begun, we are at the beginning of a journey that is literally transforming the financial services industry from top to bottom.

This particular crisis will, I’m sure and hope, be relatively short-term and a distraction from a road map that started with open banking only a handful of years ago.

Unfortunately, some will fail, as this crisis will have exposed their weaknesses. But I am sure that the majority will come stronger than ever.

And I’ll close with a few final thoughts on how to deal with the current macro environment.

First, being able to focus on the most important issues will be a founder’s key attribute at the moment. Don’t get distracted, either by your investors, your own team or your own doubts. You must be resolute and determined, and fall back on the principles of why you chose to be a founder.

Also remember that the fintech industry is closely connected and consists of a network of people who know each other well and are prepared to help. Don’t be afraid to reach out and seek advice when necessary. I’ve worked in quite a few industries and this one has a strong sense of togetherness – use it to your advantage.

Nigel Verdon is co-founder and CEO of Railsr.