At this point, we all realize that the situation we’re facing is serious and not going away any time soon. While there were indications that this was the direction things were going, as was the case in 2008 with the financial crisis, most people didn’t think it would be as severe. Having been through the dot-com bust, the financial crisis and now going through this, we know for certain that things will be tough, but it’s entirely possible to come out the other side and be in a better position than before.
Some of today’s biggest startup success stories were started during the financial crisis. Airbnb was founded in 2008. Same with Github and Groupon. And there’s a long history of amazing companies that got their start during an economic downturn. Walt Disney was founded in 1929, right in the middle of the Great Depression. Electronic Arts was founded in 1982 during another recession.
So step one: don’t panic.
Step two: be proactive. There’s a fine line between panic and proactive, your job is to stay on the proactive but positive side as much as possible, for yourself and those that rely on you.
With that in mind, we’ve put together a short list of things to consider as you scramble to put plans in place to deal with the current situation, recognizing that we don’t know when this ends, what a recovery looks like and how long it will take (although historically, recoveries from crises do take years.)
1. Over Communicate
We usually recommend that founders send monthly (or quarterly) updates to investors. As soon as a founder stops doing that, you usually know there’s a problem. In the middle of this crisis, everyone is having problems, so it’s not the time to hide away. Actually, do the opposite. Over communicate. This is true for investors, but even more important for employees (who may all be working remote for the first time), partners and customers. Investors also want to hear from you, but start with employees.
As a founder, you need to make yourself available–more than you might have in the past to help stressed out employees, customers and partners.
2. Work has changed
Some companies were already remote, and might have an easier time with what they’re facing. But even if that’s the case, they didn’t necessarily have their kids at home, spouses, or other people to worry about (like parents, other family members, etc.) Don’t pretend things aren’t different. Face that reality head on and do your best to put in the infrastructure (Zoom, Slack, etc.) and new habits to support everyone.
Changing work habits as quickly as we’re being forced to globally is very difficult. Everyone’s scrambling to figure out five different online meeting tools, communicate effectively, track work, etc. Think in shorter sprints. If you were planning 6 months out, forget those plans, and focus on what can be done in the next two weeks. Go for smaller wins as a team and celebrate them. We’re in “one foot ahead of the other” mode because it’s almost impossible to plan too far ahead.
3. Cash is king
If you’re the CEO of a startup your job has always been to “keep the lights on.” That’s even more difficult now. Very simply: cash is king. The more you have, the more likely you’ll survive. Assume a very rocky road for the next 12-18 months (possibly longer). Assume that deals will fall through or get delayed. Assume that customers will delay payments (or not pay at all.)
A number of countries are starting to put out aid packages for small businesses and startups. Find a way to explore these and see if you can apply. In Canada, the Business Development Bank of Canada (BDC) has launched a program for low-interest loans up to $2 million. Although this may be a distraction from operating your business, it might be the difference between survival or not.
4. Extend your runway
Now is the time for focus. It’s so difficult with mounting uncertainty and stress, but take a very long and hard look at everything your company is doing. Start to scenario plan around what’s going to happen with sales, existing customers, etc. What happens if a customer cuts a contract or churns out? What happens if sales slow down 25% or 50%?
Take a look at every expense you have and decide whether it’s really necessary. Suck in your stomach a bit and tighten the belt wherever possible–small cuts can add up. Speak to all of your vendors and partners to negotiate lower costs and/or better terms. You will have to start making decisions on who you have to pay quickly and which costs can be delayed. Make sure you explain what you’re doing to your team (remember: over communicate) so they don’t panic.
You have to assume revenues will drop and you’ll miss the targets you planned for. While you’re doing everything you can to keep top-line growth a reality, where you have the most control is on the cost side of the business. For customers, give incentives for paying up front (cash is king), but let’s be clear, growth will slow down and you can’t optimize for it. Focus on cash and if you’re already close to profitable, how can you get there? (If you are profitable already, how do you stay there?)
5. Raising money may get harder
If you’re in the middle of fundraising, you have to assume it will take longer. We don’t think startup financing drops completely off a cliff, but it’s likely that decisions will come more slowly and some investors will back out completely. Where it normally takes 3-6 months to raise funding, assuming it’s double that, easily.
You may also have to raise less, and take a hit on valuation. When times are tough, valuations do drop (and then they go back up when things are bullish.) Capital will come at a premium, especially if you’re in a financial challenged situation and need money quickly.
The most important issue while fundraising in these times is speed. How quickly can you make a deal happen and what can you do to speed it up? Offer better terms (to demonstrate your willingness to make things happen, and to apply pressure on a close date) with the simplest, most flexible instrument (SAFE), so less has to be negotiated and papered.
6. Don’t sugarcoat, remain steady, and be decisive
There’s no point sugarcoating things with employees, your board of directors, investors, etc. Everyone is struggling (or will be soon.) So don’t pretend things are OK. But you also don’t need to belabor the point. We know it’s rough, what’s the plan? Now is the best time for having a steady hand, and the right mix of honesty and belief. The best founders are those that can say, “Honestly, I don’t know…but we’ll figure it out. And here’s how we’ll do it…” Now is not the time for crazy bravado, it takes a lot of effort to navigate through extremely choppy waters.
If there was ever a time for making hard, fast decisions, it’s probably now. Reckless is different. Don’t be reckless. But the decisions most companies will have to make over the coming few months and beyond are going to be very tough. The longer you hesitate, the longer you burn money, or something else languishes and you put yourself into a position you can’t recover from.
7. And please stay safe
We know how important your company is to you. We’ve been there. But nothing is worth sacrificing your health or the health of your family, friends and employees. Just trust us on that. We’ve seen people struggle so mightily with their startups, it’s awful to watch. It’s terrible to live through. Family first. You and your team first. Startup failure isn’t the worst thing that can happen to you…that’s true under any circumstance, but it’s especially important to highlight today.
Remember: Everyone is struggling. And that actually means there’s a good chance you’ll find people very open to listening, giving you an encouraging word, and being there for you. You can do the same for others. So don’t hesitate to reach out to us at Highline Beta. We’ve lived through downturns, recessions and crises before. We haven’t always navigated them successfully, but we’ve managed to survive. We’re good listeners and we know it’s tough.
Plus, there’s a very good chance the next super successful startups are being born right now, which reminds us that there’s always opportunity and potential to create something meaningful and valuable in the world.
Other Links & Helpful Reads (Last updated March 20, 2020)
- VCs share investor advice during outbreak (Business Insider)
- 8 Steps Startups can take during CoVid (Youtube webinar)
- COVID-19: Managing supply chain risk and disruption (Deloitte)
Remote Work Best Practises/Virtual Tools:
- Online meeting tools:
Zoom, Microsoft Teams, Google Hangouts (now extending meeting participant limit to 250 for GSuite customers), Go2Meeting
- Advice from ten years of running remote teams (InVision)
- Dentons COVID-19 (Coronavirus) hub (Global Resource)
- Consider hosting a virtual movie night with Kast, Netflix Party
- Use online exercise apps such as Strava, Peloton, Apptive (many are providing free classes)
- Use Donut to arrange virtual coffee meetings
- Organize virtual interactive lunch and learns. Benji is offering these for free
- WFH 101: Tips and tricks from the home front as tech workers go remote during coronavirus crisis (Geekwire)
- Workplace Mental Health Playbook for Business Leaders (CAMH)
- WFH Parents Survival Guide (crowdsourced)
- Various events with book authors: https://www.quarantinebookclub.com/
- March 25th: Mindfulness Training Webinar with John Kabatt Zinn
- March 26th: Webinar Series: How Leaders Can Navigate Chaos in Uncertain Times (Singularity University)
Other Tech Resource Handbooks:
- Facebook Small Business Grants Program: Facebook is offering $100M in cash grants and ad credits for up to 30,000 eligible small businesses in over 30 countries where we operate. [As of March 20: no information available yet; can sign up to receive updates]
Thanks to Jen Couldrey from Upside Foundation and the Tech for Good handbook for inspiration for this list. Parts have been published with permission.