This is an unprecedented time for entrepreneurs and companies of all stages and sizes, to say the least. A one hundred year black swan event has hit us masked as Covid-19 and all companies and their leaders are reacting. Some confidently, some thoughtfully, some lightly, some sweepingly, some optimistically, some negatively, some aggressively, some frantically, some measured, some poised — all doing what they think is right. All reacting the way different personalities of human beings do.
One consistent thing about entrepreneurs is that they are adaptable, flexible, gritty, and dedicated, but that doesn’t always mean they (or many times their investors) are going to make the perfect decisions or act the way you’d expect during a crisis. These constituents have different priorities. The game completely changes when the pressure reaches an all-time high, when startup risk reaches a boiling point. Human behavior is fascinating and brings with it a response in the face of insurmountable challenges and high-stakes.
The Macro and Micro Crises
In reality, companies have good months, bad months, good quarters, bad quarters, good years and bad years. There are ALWAYS things that go wrong, both macro (like Covid-19, 9/11, H1N1, the financial crisis, Trade Deals, Tariffs, GDPR, Brexit, Natural Disasters) and micro (like competitive entrants, broken products, poor networks, lost talent, customer churn, et al). There are also many crises in between, both macro and micro, that bring about the challenges of both wrapped into one. I wrote about an incredible one we all faced together in our career at Dyn. I know it’ll resonate.
You either embrace it, step up and evolve afterwards – or let it paralyze or cripple you. There is a great quote from the classic movie (I used it in the above blog too) The Count of Monte Christo that is perfect for right now (rent it at home!): “Life is a storm, my young friend. You will bask in the sunlight one moment, be shattered on the rocks the next. What makes you a man is what you do when that storm comes. You must look into that storm and shout as you did in Rome. Do your worst, for I will do mine! Then the fates will know you as we know you”
How We React
With that, I’ve found two consistent focus areas being prioritized within the startup landscape we operate in as action and reaction to the Covid-19 pandemic, the sudden shift to remote work, our global economic volatility, and the slow-down of business everywhere. Here they are with some perspective on each below:
- Expense management
Both focuses should always be focuses, but it’s understandable why they are top of the list today. On the surface, both seem smart and are the right things to do given this outlandish dynamic, but that’s also not to say that two companies, or industries, or burn rates, or sales targets/results are exactly the same and companies must or should implement the same precise measures. There are a wide range of moves occurring in one and two above that are and should be different for every unique butterfly of a company. Think of it like a sliding scale of ways to adapt and adjust and iterate – that has far ends of behavior from nothing to subtle to drastic – upward and downward – based on the company.
On number one, I’m seeing a lot of firings of talent happening and then hearing the whispers in my ear from CEOs that it was just an excuse to “cut the fat” or “remove the marginal players” under the cover of the crisis. I think this is fair and reality in business, but I find that I need to ask this when expense management moves to talent cuts, salary decreases, benefit shrinking, etc. It all makes sense around discretionary spending in GTM, new hiring, big CAPEX expenses on equipment, M&A, etc., but let’s not get carried away and make up for poor business management during the good times.
On number two, I’m seeing it as a level of an excuse for companies to right size or “real-size” their yearly numbers and long-term model (LTM) away from the rosy, overly-optimist, semi-BS numbers they had in their last fundraise deck. I always say it typically takes a company one additional/extra year to accomplish their five year revenue goals than their initial LTM dictates. This situation is just a forcing function, again in most industries, to just get things back down to earth and engrained in reality.
Macro and micro things happen. All the time. That’s what makes startups so hard and that is what makes the job of a CEO so lonely. Only you can make the tough calls in these moments and you simply can’t afford to be shortsighted. They’ll be lots of blogs like this, advice from mentors, opinions from colleagues, other execs, board members, but the decisions you make today, you need to live with (and so do your teams), so slow it down, don’t freeze, keep moving, over-communicate and most importantly maintain your resolve.
What’s Being Done
I’m seeing way too much pattern mapping from VC-backed startups (especially where the VCs are non-operators and managing their portfolio on a merged spreadsheet) where they feel the need to self-correct their ridiculous burn rates and lack of efficiency/effectiveness historically, through this crisis. I’d say much of that is just practical and pragmatic business operations and a move away from financial engineering of success, which we see too often in our over-funded, over-valued, VC rich culture filled with vanity metrics.
There is a big obvious short-term impact on markets like travel, events, education, hospitality, SMB targeted, etc., so this advice has a different vector for those startups. They’ll also be lingering effects in those industries we do not know, but most others need to just hunker down, focus on 90 day execution, invest in brand and thought leadership, and harden the foundational strategy for the long-term. In startups, we’re all playing the long game. Stay confident, stay committed.