Hard Decisions for Uncertain Times: A Founder’s Guide

Those living today have never seen a time like this. Nobody was prepared for the COVID-19 pandemic. The dot-com bubble and the housing crisis both had a long gestation period. Many could and did prepare for those shake-ups. Quite a few also predicted, to some degree, their fallout. In each situation, enough mechanisms were in place to reach equilibrium on the flip side.

This time around, consumer behaviour may never be the same again. Will people eat out as often? Will Zoom become the norm for workplaces? Will Hollywood release blockbusters on Netflix on day one? The post-pandemic world will see a shift in profit centers — and that may mean a business that worked yesterday will no longer make sense, and a business that doesn’t yet exist will be the next unicorn.

As founders, decisions have to be made — for your employees, your investors and yourself. How do you move forward in a time of such uncertainty?

You are here —time to make a decision. / Photo by John Baker on Unsplash

There are four key questions to ask when deciding how to proceed:

1. Will COVID-19 fundamentally change your business? If so, is it for the better or worse? For instance, if you’re Zoom, the answer is obvious. Companies across the world have figured out that some simply operate better remotely — and they’ll be sticking to that even after lockdowns are lifted. However, what kind of impact will it have on theme parks or movie theatres if people suddenly prefer a virtual reality instead? People may structurally become wary of crowded places or refuse to travel unless absolutely necessary.
2. What kind of runway do you have? If you need to raise money immediately to just survive, chances are you would have hit a wall even without COVID-19. However, if you have a large amount of cash in your bank account, you could cut all unnecessary costs and hibernate until there’s greater clarity. (I wouldn’t recommend that, but it’s an option.)
3. Do you have the necessary resources to pivot? Depending on your product and/or industry, a pivot — whether short-term or long-term — could make a lot of sense. However, if you don’t have the personnel or resources to do so, it may be impractical.
4. Are your existing investors able to help? This can make or break quite a few companies, especially if the runway is short. Incidentally, this is also why high quality angel and seed investors are so important to startups.

What’s a founder to do in these uncertain times? Here’s a decision-making tree. (Click to enlarge)

The flowchart above is a rough guide on how to come to a decision. By no means are these rigid guidelines but rather a foundation to help you, the founder, navigate through these uncertain times.

Some of the primary takeaways from this:

1. If you pivot, make sure it’s in-line with your company’s long-term vision. For instance, don’t suddenly deliver groceries if it doesn’t benefit your core technology or product. If you’re collecting data that you can convert into future users, that’s a possible way to justify such a decision, but —
2. Remember that investors will ask what you did during the pandemic. If your revenues fell, they’ll understand. What they won’t understand is if you burned investor cash to run a business that didn’t help the company’s long-term plans and valuation.
3. Cutting all unnecessary costs doesn’t mean the company can’t be improved upon. Improve your code. Redo your app. Call potential clients and line them up for business for when all this is all over. The absolute worst thing a company can do is nothing at all. It’s arguably worse than a bad pivot.
4. Take advantage of your ecosystem. Odds are other founders are also experiencing similar issues as you. Barter services, collaborate or build partnerships that would have been unlikely before thew pandemic. Exchange engineers for CFOs and share strategies with your former enemies. Lack of money doesn’t keep you from improving.
5. Communicate! Talk to your investors, talk to people who didn’t give you money. Talk to your employees, your customers. Let them know what you’re doing and how they can help. If nobody knows what you’re going through and thinking, how can they be part of the solution?

The two most critical decisions founders need to make in such an environment:

If the stars align, get aggressive.

If your company is able to operate successfully through COVID-19 — meaning you have flat to increasing demand and 12–18 months of runway or are able to raise immediately — then take advantage of this uncertainty to gain market share today and hire the best talent available (including many who will unfortunately be laid off) to prepare for tomorrow.

If Murphy’s Law strikes, it’s okay to say it’s over.

If you: 1) don’t have a large market share, 2) have been unable to build a competitive advantage, 3) have serious competitors with proper financial backing, 4) have a product/service that’s significantly impacted by COVID-19 or, most importantly, 5) believe your product/service will see a structural decline in demand after things settle down — take a deep breath here! — there’s no shame in winding it all down.

Finding a soft landing is a respectable option. Talk to your investors, mentors and competitors. Figure out what your most valuable assets are and find a buyer. Or find your employees a home through an acquihire. Your and your employees’ mental health is important. How you treat them as well as yourself will be part of your legacy beyond a single startup.

And here’s the thing: A lot of investors like second-time founders, even if their first startup failed. They’ve gone through hell and know how to get back up. They know the pitfalls and have a greater sense of self-awareness. Most importantly, they know not to drag employees, investors and themselves through a never-ending descent without the sight of light at the end of the tunnel.

Make the hard decision. These folks did.