At the start of March, in the early stages of the global pandemic , most CEOs were not spending time preparing for economic downturn. This is according to a new report from Gartner, which asserts that many businesses are now facing a potential worst-case scenario.
“While the survey found that 43 percent of tech CEOs were worried about an economic recession impacting their revenue growth in the next 12 months, many delayed taking action to prepare for this eventuality,” said Patrick Stakenas, senior Research Director at Gartner.
Based on a poll of C-Suite members at large organisations, the report states that tech companies should base survival strategies on current customers and cashflow, and should not rely on bringing new customers in.
Gartner argues that businesses need to take two crucial steps in order to survive the economic downturn: calculate financial runway and determine a survival strategy.
In order to calculate the financial runway, businesses should calculate cash burn rate – data that very few organisations currently utilise. “This lack of focus on cash burn rate has led to severe cash flow problems for companies during the COVID-19 pandemic and resulting economic downturn,” claims the report.
Businesses should also determine actions critical to their survival, which will vary depending on how far a firm can stretch current cash reserves.
“Companies who have less than 18 months of financial runway must eliminate all possible costs,” said Stakenas. “The reality is that startups strapped for cash will need to run the business very lean to survive.”