For the last couple of years, startups have been preparing for a recession, but the coronavirus pandemic and its effect on the economy are unlike anything they predicted.
Why it matters: Even companies that had recession plans and have been modeling burn rates, cash flow, and dips in business are throwing those projections out the window and taking drastic measures.
Case in point: TripActions, a company whose app lets employees book their business travel, laid off three hundred employees this week — roughly a quarter of its staff, per Protocol.
- Last October, co-founder and CTO Ilan Twig told Axios that the company had been preparing for a recession with cash in the bank and modeling potential decreases in business travel.
Between the lines: Whatever TripActions predicted about a recession was much milder than what it’s facing right now, as business travel has essentially dropped to zero across the U.S.
- "You don't see a recession — you see stoppage of usage," TripActions CEO Ariel Cohen told Axios on Thursday. "It will be extremely irresponsible of me if I tell you right now that I know if we’re going to lay off more people because I don't know this.”
- Lime is reportedly considering making cuts, despite president Joe Kraus telling Axios in January, when the scooter rental company laid off 14% of its workforce, that it had no plans for more reductions at the time.
"This situation is one that virtually no one was prepared for," says Shift co-CEO George Arison, whose company recently announced salary cuts and furloughs.
- "I mean, who would have ever thought that our entire economy would be 'shut down' for a month or longer?"
The big picture: Companies are rushing to stretch out budgets for as long as possible, given the fog of uncertainty hanging over the economy.
- While the White House is repeatedly saying that it wants to ease up restrictions in coming weeks, experts are predicting longer shut-down periods, making it difficult for startups to know just when they’ll see their businesses bounce back or be able to raise new capital.
Go deeper: Sequoia Capital calls coronavirus "the black swan of 2020"
