As an investor, I seek to back brands that have created meaningful connections with their consumers. These brands occupy a place in consumers’ homes, on their weekly shopping lists, in their health and exercise routines, and in their families’ and pets’ lives too. Throughout and following this unprecedented time, I recognize the responsibility of my partner brands to lead by example. As such, I’ve put together some brief thoughts below on how I hope both current and future Founders and CEOs can navigate this period of immense change:
- Health comes first — remain vigilant about your own physical and mental wellbeing and systematize frequent check-ins with employees through the WFH period. If your office remains open to any employees that do need a space to go in this time, ensure that exposure to other employees and use of common spaces remains minimal and properly logged. Drink plenty of water, get fresh air hourly, sleep, meditate, read, write, do those things that contribute most effectively to your personal feelings of stability and happiness.
- Recalibrate — understand, and be comfortable with the fact that, that this event will pose an existential threat to your existing business model. Rather than feeling daunted by that fact, exercise your ability to think and act creatively as an organization. Necessity is the mother of invention. I recommend modeling out a variety of scenarios sensitized around the new sales and cost structure realities.
- Specifically, engineer a new cash flow reality that reflects (1) likely delays or cancellations of planned purchase orders from new retailers for at least the next 6–9 months; (2) a reinvestment in high LTV existing customers vs. new customer acquisition campaigns; (3) deferral of all major cash-intensive capex projects; (4) slower, more expensive (I’ve been modeling in the realm of 20% impact) supply chain dynamics as suppliers, manufacturers, and fulfillment centers respond to unprecedented shifts in demand and reduced headcount; (5) delays in new hiring plans, likely org-wide salary stagnation for at least the next 6–9 months; (6) equity infusion as needed from existing investors vs. liquidity from outside investors, as many funds momentarily reassess deployment schedules to understand their existing portfolio needs. Be prepared to ask existing investors what their reserve capital position looks like today to determine if they have the capacity to support follow-on investment, or if you will need to look for more creative capital in the event of a liquidity crunch.
- Forecast — in addition to modeling out new operating fundamentals, it will be important to sensitize your company model around a variety of tapering scenarios. McKinsey has projected two such scenarios termed “Delayed Recovery” and “Prolonged Contraction,” effectively a base and downside case for the spread of COVID-19. Neither scenario is particularly rosy for growing consumer brands today, both projecting a steep dropoff in consumer spend through 2020, a resurgence of the virus in the Fall, impairment of supply chains and sustained demand-side reductions, and a spike in layoffs and bankruptcies. Consumer brands should be prepared to hedge themselves against this downside scenario — ensure you are managing liquidity extremely closely and be prepared to be fighting the headwinds of this event through at least mid-2021.
- Adapt — do not be tone deaf in a time that demands leadership, confidence and empathy. As leaders, Founders and CEOs must set the right precedent for coping with employee health concerns. Be compassionate, be patient, and listen to your team — this is a great time to establish a new layer of trust and camaraderie with your employees. As organizations, businesses have an obligation to act responsibly and recognize their civic duty — where it’s safe/appropriate, find ways to support the elderly or otherwise at-risk population. Provide informative, objective content to your existing consumers and establish thought leadership in your domain to attract future consumers to your brand today.
- Record — memorialize the shifts in your day-to-day operations and lift best practices from pre and post-Covid realities; you will likely have a better understanding, after the frenzy subsides, of all the factors that contribute to the normal flow of business ops, from supply chain to operations to sales and marketing. This is a great opportunity to reset your standard calendar, nail down the relationships and practices that meaningfully benefit your organization, and “trim the fat” around what doesn’t serve a crucial purpose.
- Project — Nielsen’s six stages of consumer grief currently posits us in the US and Europe in Stage 5, that of Restricted Living. Stage 6 comes next, that of Living With a New Normal, or a “gradual return to regular, daily routines with heightened caution. Nielsen forecasts tangible ‘shifts in the supply chain, the use of e-commerce and hygiene practices.’” In other words, this too shall pass, but not without structural shifts to our consumption behaviors. I’ll be posting a follow-up on our predictions for how buying behavior will adjust as a result of this period, for those keen to follow along.
On a more inspiring note, I’ve been fortunate to sit at the crossroads of a variety of conversations circulating around the CPG world in the wake of this game-changing event. Through participation in Slack channels, hosting Zoom collectives, one-on-one phone calls with portfolio teams, and a long-tail of other sources, I will be aggregating and tracking the CPG communities’ predictions around the state of consumer in the wake of COVID-19. Here are a few top predictions that I’ve seen cross my wires below, I always welcome your feedback and your own predictions as well:
On the macros:
- The economy following COVID-19 will more likely resemble a post 9/11 economy than a post 2008 financial crisis economy
- Long tail service providers and retailers will claim market share from incumbents at an accelerated pace — consumers scrambling for goods are being faced with out-of-stocks from their traditional retailers and are turning to newer, previously unknown models to satisfy their needs; will lead to an uptick in third-party distribution utilization (e.g., GoPuff) and new customer acquisition for emerging marketplaces (e.g., Bubble Market)
- A (very modest) resurgence in the barter economy — Amazon stockpilers sitting on mounds of product may not be able to liquidate their positions readily in the face of marketplace restrictions — I’ve anecdotally been witnessing a degree of bartering on peer-to-peer basis through social platforms, but could this take root in a more meaningful way at the corporate level?
On the micros:
- Online business models must move towards first-order profitability to remain viable investment targets — investment community will favor high gross margin, stable CAC, majority organic-acquisition businesses
- Clustered communities will form more tightly around trusted nodes; customer acquisition will necessarily diversify — the age of Facebook and Instagram controlling how brands spend marketing dollars will taper off as consumers look for information in higher value, content rich clusters; fragmentation of consumers will lead to more diverse marketing funnels
- Consumer attention will also be shifted across new pockets of time — WFH for the foreseeable future will change the nature of when and how deeply consumers are engaging with content; the scheduled release of emails or posts to social on a tight calendar basis will be unwound
Lastly, here are the resources and thought pieces that I’ve found helpful in informing my own analysis of this ongoing situation — please feel free to share your own top reads as well and I will update the list accordingly:
- Apply for an zero-interests SBA Loan (NYC companies, up to $75k) and payroll coverage up to 40% for businesses with less than 5 employees
- Free Marketing Mini-Degrees for marketers whose jobs may be threatened by early stage businesses’ liquidity crunch
- The Corona Crisis Checklist for Startup CEOs
- Tightening Operations, Finding Funding and Staying Optimistic in a Crisis
- How to Win at Working Remote
- This Is Not Book Club (book and culture recommendations while you avoid your family)
- Panic With Friends (Fred Wilson on the record with Howard Lindzon)
- Give Local — support your local small business!
- Shop at Thrive Market to donate a % of your savings to those impacted by COVID-19
Above all, I look forward to supporting the brands I work with throughout this difficult period and into the new normal. I think this moment will only serve to strengthen the partnership I value so much and I remain, as ever, excited about the growth that lies ahead.
