How to steer a startup through a major downturn

Mark Selcow
Mar 22, 2020 · 5 min read
Image Credit: sarote pruksachat/Getty Images

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We’re now in the fourth significant financial crisis of my career.

The first was in 1987. I had just graduated college, gotten my first job, and opened a Schwab account. Then the market dropped 23% in one day. Although I was fortunate I had little to lose, it was still jarring (yet educational).

The second was the tech crash of 2000, where I had sold my first startup, BabyCenter, to eToys, which went bankrupt because they lacked capital to fund their operations post-crash. I lost a lot.

The third was the global financial crisis in 2008. The second company I co-founded, Merced Systems, faced the end of our fiscal year with a big number to hit and a pipeline of buyers who were cancelling projects. We acted quickly and decisively, reduced burn to protect the business, pulled together as a team, made it through the crisis, and continued growing our business until we sold it in 2012.

Today’s COVID-induced market correction is different from the other three, but like the others, its duration and depth of impact are currently uncertain. None of us knows how this will unfold. That’s how it felt the other times too.

Your job as a founder and leader is to unify your team, plan for scenarios that are possible, and act to protect your company, employees, and customers. If you’re a startup, your company hasn’t made it through an economic downturn before (even if you have), so it’s a leadership moment. Here are some actions your leadership team should be taking quickly:

1. Do scenario planning

Plan for a range of business conditions and discuss openly with your board. One of your options should be how you can get to break-even on existing capital, or a modest infusion. Things to model:

2. Drawdown venture debt

Know if you have a prepayment penalty or not, but this money, as well as the terms under which you signed, may quickly go away. Debt-providers are great partners, and they have covenants that allow them to change terms based on “material adverse change” that can be enacted for all kinds of reasons. Contact them and consider drawing down now. It’s better to have the flexibility and the runway extra cash enables.

3. Clarify what is covered by insurance

Do you have continuity of business coverage? What events are covered? What about disability for employees? Get clear on what is covered or not. Even if you’re not covered for a pandemic (most of you won’t be), you may be eligible for local, state, and federal disaster loans. Your broker may be a good resource to learn about those.

4. Look after your customers

Be communicative. Be attentive. Can you manage a modified service for them? Can you offer a service for free or under different economics for a while? If you aren’t providing critical value to customers, realize it will be hard for you to sell to them right now — and maybe for a while.

5. Add new value to your customers

Find ways to adapt to the current situation your customers are facing. Is there a new way to use your product? Are there services you can provide? Reach out to brainstorm and listen to what your customers need in a temporary solution. You can be the partner they remember from this chapter.

6. Experiment with different funnel activities

From top-of-funnel large events to middle-of-funnel intimate dinners, your face-to-face activities won’t fly for a while. Leverage virtual or digital heavy options (e.g., webinars, ABM, Zoom prospecting, videos in sales outreach). But more importantly, get creative in your outreach. This will be a time to stand out.

7. Redefine the sales process using virtual tools and faster closing

All customers freeze under uncertainty, so even industries you think are not going to be affected will slow down their purchasing for a period of time. If you have field reps, standardize a path to move deals along without face-to-face meetings. If you have a verbal, get it signed. Focus efforts in the short term on other areas that improve sales productivity, like sales enablement (virtually) and sales process improvement.

8. Double down on things that minimize friction to try your product

Elements like self-service onboarding, free demos, and a bottom-up approach to market are good options to try. Consider being more flexible on SaaS contracts (example: month-to-month with a cancellation option) as a way to keep prospects using and evaluating your products.

9. Do less, but do it better

Reduce anything from your product road map and business development that is not pointed at the next six months of revenue, customer, and market proof points. Are you trying to do too many things? Should you prioritize better or simplify? Ask what are the two most important things that must be done in the next two quarters. Those are now your new must-do metrics.

Most important, be courageous, be realistic, and lead. Be transparent and do more all-hands meetings than you have in the past (virtually, of course). Be visible. This is a time to make hard decisions about priorities, projects, lines of business, and even staffing that perhaps didn’t seem worth discussion before but definitely should be now. Companies that act quickly and make hard calls are best suited to emerge from a tough economic cycle in advantaged positions and can be the winners in their markets over the longer term.

This article was originally published on VentureBeat.

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