As we turn the calendar into 2025, it’s now clear that the cost of capital is set to remain higher for longer than most of us expected at this time last year.
In December, the European Central Bank cut its target overnight lending rate from
Both now seem poised for only modest declines in 2025; by 2026, they could begin ticking up again.
“Persistent inflation has caused central bankers to reassess their monetary policies driving an increase in bond prices, ” says Shmuel Chafets, co-founder of European venture capital firm Target Global. “As a result, interest rates on commercial loans are on the rise once again.”
Needless to say, this is unwelcome news for startups seeking outside capital to fund growth (or simply to keep the lights on). However, it may be a blessing in disguise for cautious founders who now see an opportunity to “grow smart” and conserve cash while doing so. With these five cash conservation strategies, these leaders might just bridge this uncertain period without returning to unfriendly capital markets.
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1. Pool Resources With Other Startups
Very early-stage companies can “virtually” pool resources with peer companies by joining startup incubators or accelerators.
With scale, this becomes impractical, but opportunities remain for legitimate resource sharing, according to Faster Capital. To do so, founders should “clearly define the objectives and expected outcomes of the partnership, identify complementary resources and capabilities that can be shared for mutual benefit, and establish open and transparent communication channels to foster collaboration,” they say.
2. Keep “IRL” Expenses Low
Every founder knows (or should) that it pays to run your startup lean. Many fail in this despite their best efforts, of course. To increase your chances of succeeding, avoid temptation — especially the impulse to inflate “in real life” expenses like unnecessary office space, extravagant catering and superficial employee perks. Focus on the stuff that actually attracts and retains talent: competitive pay and benefits, a flexible work environment and a mission-driven culture.
3. Hire On An “As Needed” Basis
Knowing when it’s time to hire your next (or first) employee is more art than science. However, there are signs, says Barbara Neff of Gusto Talkshop.
One big, flashing warning sign is higher-level employees consistently doing rote work. “If you or other highly-skilled employees are performing administrative tasks that are essential but require low-level skills, that’s counterproductive in the long run,” Neff says.
Other signs include escalating overtime compensation, declining customer satisfaction, lost business opportunities and a general feeling that you have too much on your plate to manage the business effectively.