Like many of our colleagues, we endeavor to provide good counsel to our portfolio companies. To that end, we shared this email with our 100+ startup founders and CEOs earlier this week. Due to their feedback, we are publishing it publicly here.
We are living in an unprecedented moment in history and, like many of you, our thoughts are swirling around how we can both protect what we hold dear on a personal level (our families, the health of our loved ones, our assets) and be helpful and useful in some way to you, our valued community. Having managed through numerous major financial crises in the past (e.g., 2000/2001 and 2008/2009), we wanted to share a few observations from experience in the hope that they might prove useful to you.
- Hope for the best but plan for the worst. All new business activity and fundraising are probably in the process of freezing up. If you’re in the midst of a financing process, stop negotiating and close it. If you’re embarking on a financing process, consider whether you can pull back and wait and/or be prepared to take a suboptimal deal. In the face of a large decision involving a new investment or major new initiative, every boardroom, every partnership meeting, every executive team meeting is going to ask themselves — “what’s the downside of waiting on this one?”. In the never-ending battle between fear and greed, fear is gaining the upper hand. Act accordingly.
- Mann Tracht, Un Gott Lacht (Man Plans and G-d Laughs). Those 2020 budgets you painstakingly created and secured board approval for? Throw them away and start over. You need to extend your runway in the event that the downturn lasts a number of quarters. Obviously getting creative in pursuing incremental revenue is the best solution, otherwise, assume you need to cut costs 20%. Why 20%? Because human instinct is to be optimistic and, besides, cost-cutting sucks and so you’d rather not do it. Instead, you hope for the best. Experience suggests you should cut now, cut more deeply than you think you should, learn to do more with less, and be ready to “survive and advance”.
- The single biggest problem in communication is the illusion that it has taken place. You may think you’re communicating well with your team, but you need to aim for over-communicating. They should be on the verge of tired of hearing from you. A daily update note that is personal, authentic and informative is warranted. During uncertain times like this, your team wants to hear from you and wants to know that you’re taking decisive actions. Don’t hide bad news and be comfortable with the “worse before better” effect (i.e., the more transparent you are, the worse things are going to initially feel). Make sure that you create an environment where everyone feels psychological safety and can express their concerns, fears, and criticisms openly and in a candid fashion without fear of reprisal.
- Never let a crisis go to waste. Opportunities emerge during uncertain, tumultuous times. You’re likely more online, remote, creative, and nimble than your competition. Take advantage of it. Are there new offerings, messages or approaches you can be taking during this time of crisis? Can you be even better positioned to win when this all blows over (as it will eventually)? History has shown that some of the best, most resilient companies, and ultimately impactful companies were born out of financial crises. Our initial investment in MongoDB closed in October 2009. That one worked out pretty well for everyone involved.
A final observation: based on the expert assessment of this pandemic, it is quite likely that someone you know and perhaps even one of your employees will contract COVID-19. Angela Merkel’s estimate that 60–70% of the German population will contract the illness may not be apocryphal. You should be prepared for the likelihood that it will strike close to home and be poised to communicate with your team the implications. Think through your procedures and employee FAQs now if someone on your team contracts the virus. There is a risk of fear and panic in any uncertain environment. You are the leader to help navigate your team through that uncertainty.
Stay healthy and safe. We are here for you and available any time if you want to review new budgets, new plans, brainstorm creative ideas, or just generally receive a virtual hug.
The Flybridge Partners
(Chip, David, Jeff, and Jesse)