How to run a startup in crisis — summary of the call with CEE founders
Very hard times are here. Since for many startups the coming months will be critical, we organized a call with our portfolio companies and a few top Polish founders to share our understanding of the situation and discuss actions that CEOs should be taking.
You can find the material here. Given a lot of important content was actually said we wanted to share and summarize the key points — please find them below.
Key takeaway: The current situation is as bad as the 2008/09 crisis or worse. Seems that most founders underestimate it! Most of them don’t remember the last crisis!
Macro perspective & impact on revenue
- We should prepare for 3–6 months period of lockdowns and quarantine and 12–18 months recession, which will seriously impact your revenue.
- Even if your revenue hasn’t decreased yet — you should be prepared for it.
- A zero revenue or 80% drops in revenue are or will be happening!
- Founders should prepare scenarios with 3, 6, 12 months slowdown in revenue and estimate how much OPEX decrease is required to ensure 12 or 18 months runway.
Cashflow, funding and cost-cutting
- Founders who see a negative impact on their business should cut costs ASAP and more than they initially assumed.
- Controlling cash flow is key — approve every significant transfer from your account.
- Try to renegotiate payment terms and plans (you can even renegotiate your office lease — try to renegotiate everything!).
- Get upfront payments from clients at discounts — cash is more important than gross margin.
- If possible get any money into the business (grant, debt, funding at low valuation).
- VC market is effectively frozen for companies impacted by the crisis. Some VCs still invest but are very selective, others are on hold. Good insights on the topic can be found in that article.
- Hence it’s crucial to get to break-even if you’re short on cash and no opportunities to raise a new round.
This crisis vs. the 2008 crisis — similarities and differences
- Today’s different than 2008/09, where recession came from financial problems, now its health issues.
- CEOs — you need to take that into consideration, e.g. know your employees (who’s taking care of kids, elderly) — build trust with your employees, if you fire — do it in a humane way!
- If you can close the current round — close it! Investing terms and conditions will worsen, that’s what happened in 2008.
- Based on the 2008 crisis — ongoing M&As will vanish, but there will be many opportunities to buy unprofitable companies cheaply in the near future…
- …so the competition will suffer as well — giving rise to a lot of other opportunities not limited to M&As e.g. easier winning competitors’ customers, hiring experienced managers, etc.
- You need to be flexible and act fast —that is what successful CEOs did during 2008–2009. Regularly look through numbers and what's happening in the sales, marketing, customer situation — the circumstances will change and you need to adapt quickly.
Enterprise perspective:
- There will be a slowdown in decision making, especially in deal closing. You can still work on adding deals to the top of the funnel, though.
- Work with your clients and show them you understand and care for their problems. Make sure your product is mission-critical for your customers, not a nice-to-have feature. Position yourself well so you won’t be cut during cost-cutting.
- It’s a good time for product discovery, even though your prospects won’t have budgets to buy it now. Many companies effectively lower the barriers to entry for enterprises by granting some of their services for free with extended free trials or low commitment plans
- The COVID-19 crisis will push many businesses into more technology-driven solutions — identify and target key decision making personas and proactively approach them.
The future
- Digital and tech will be winners from this crisis in the long run. Many startups will have a hard time surviving, but those who will do will have great chances to become very successful companies.
- Several industries see a spike in demand already — this behavioral shift will stay in the long run for some of them.
- Markets will bounce back — make sure your company is alive when it happens.
Wrap up
We didn’t cover the topic on how to work remotely and take care of the team. We see some great initiatives already being implemented by the Polish startups e.g online wellbeing session organized at tylko.
I would like to thank Inovo Venture Partners team for preparing the material, and all the founders for participation and openness to share challenges and solutions.
In case you missed the link to the material mentioned at the beginning of this post:
https://www.slideshare.net/InovoVC/200323-founders-in-corona-times
If you are a founder at Seed stage looking for the investment we are active even these days — so reach out to us. If you would like to participate in such calls/sessions also let us know!
Recommended reads
Macro view:
- We’re not going back to normal, Gideon Lichfield, MIT Technology Review
- The Implications of Hitting the Hard 0% Interest Rate Floor, Ray Dalio (beware: long and hard macroeconomic perspective)
- Impact of the Corona crisis on startups & tech, Dealroom
Funding options:
- 7 facts brutal facts from most active VCs, Nicolas Valaize
- Funding in the time of coronavirus, Mark Suster, Upfront Ventures
- The venture capital market is effectively frozen. Here is why, Zach Coelius
How to prepare:
- 28 Moves to Survive (& Thrive) in a Downturn, Pete Flinx, NFX
- 4 Tips to Manage Sales During the Coronavirus Outbreak
- Put Your Thinking Caps On: How To Sell During The Coronavirus Pandemic, Randy Illig, Forbes
- Coronavirus: The Black Swan of 2020, Sequoia’s letter to founders and CEOs
Other:
