The Economic and Business Impacts of a Pandemic
We know you are seeing the headlines, experiencing the stock market volatility, and feeling the emotions of one announcement after the next. There is no modern parallel for what the North American and the Global Economy is about to experience or what we have experienced so far. Many reports and leaders are citing the possibility of very high percentages of the population contracting COVID-19. Economic activity could grind to a halt on a scale similar to the great recession of 2008–2009. What does this all mean when operating a scaling software startup?
It means that cash will become king for companies. Our advice is therefore to take a hard look at current budgets and significantly curtail nonessential spending. Cash runway will be of paramount concern. All companies will need to monitor cash in relation to trends in revenues and churn on a frequent and regular basis. Assurance of healthy unit economics for customer acquisition is more important than ever and your ability to react to a changing reality is crucial.
We expect sales funnels to be less predictable than ever before with volatile conversion rates and generally longer than normal sales cycles. As such, a focus on your existing customers could prove to be a stronger pathway to near term growth. Focusing on churn mitigation, stickiness and account expansion may be the more efficient path to growth than attempting to acquire new customers. In the near term, prospective customers will likely be slow to buy and be cash conscious as they face constrained budgets waiting out the volatility initiated by the pandemic.
A focus on online channels over others may prove to be the most effective for new customer acquisition given the current worldwide emphasis on curtailing travel and in-person meetings. Businesses are likely to shift even more of their resources online. It also means people will likely be forced to work from home for weeks at a time, with face-to-face communication increasingly discouraged. Online learning and online resources will be critical. Engagement with prospective customers in these forums should be emphasized.
Ensure that your IT infrastructure supports remote work and that there are continuity plans for increasing levels of disruptions. These include office closures, restrictions on mass transit, and response plans for if and when COVID-19 spreads through your team. Preparation matters and your ability to plan and clearly communicate contingency plans will be important to minimizing down-time.
Beyond anything, the fragility of us as humans cannot be ignored. We all become fearful. During these times, leadership matters. We encourage you to look inward and spend time and energy on your team to ensure their needs are being met. Responsiveness, rational decision-making and clear communication can create assurance and confidence in the stability of your business and your ability come out on the other side. These can be good times to go back through history, reiterate how far you have come, point to the north star, strategic roadmap and overall vision. Building companies is hard for both the aspects we can control and the aspects that we cannot.
While this may seem scary for most people, many of whom have only known a bull market, it is ultimately an event that will define a generation. Out of adversity comes opportunity. Although the economic effects are likely to be pronounced and prolonged, we should try to reflect on the learning opportunity that exists. Those companies who respond will emerge much stronger with an opportunity to acquire assets, talent and competitors at distressed or undervalued levels.
We believe the fundamentals of the global economy were quite strong before this event and the most likely outcome is that we emerge ultimately even stronger.
