The end of business as usual — learning from founders facing a new reality
The ongoing pandemic has impacted not only our lives but also the global economy. COVID-19 will stay with us for months to come and it is unlikely that our world will ever look the same. This is the time to adapt.
As April has ended, most companies, public or private, have reported their quarterly earnings. Behind us lies the most shocking quarter in modern economic history. Due to the Corona-related shutdowns, the International Monetary Fund even issued a stark warning predicting the "worst economic downturn since the Great Depression".
One may get the impression though, that this warning is slightly exaggerated. It is springtime in Berlin, the sun is shining, groups of people sit together eating their lunches or having a couple of beers in the park, the stock market is bouncing back. Shops are starting to open again and politicians outbid each other with ever-new demands for relaxation of the lockdown-measures. But don’t get fooled! The world will not be the same. Certainly not before we have a vaccine which, even if we ignore the time for mass production and proper distribution, experts believe to be available in more than 12 months from now. Certainly not ever! The truth not only has changed in sectors such as travel or hospitality, where this is more than obvious. The truth has changed everywhere and we must learn to adapt.
Fortunately, at Runa Capital we work with a bunch of smart and incredibly resourceful founders that fearlessly and creatively steer their companies through these difficult times. Here are some of the things we have learned from them.
Protect the downside
The first and most important thing when facing a crisis is to understand where you stand and protect your company against any immediate threat. Here are a couple of things to keep in mind.
Don’t forget the happy end when planning
All companies we spoke with have performed scenario analyses. A simple high-level and often-shared tool for this endeavour has been the Matrix for COVID-19 from Sequoia. However, building complicated financial scenarios, one should not forget the goal of such an exercise. It is not important by itself to extend the lifetime of your company by a couple of months. You should come out of every scenario with a happy end, a sustainable path to success. How will you be in the best position for your next fundraising? What do you need to become profitable?
Burn less not more in your worst scenarios
In your worst-case planning scenario, you might see your cash reserves dwindling as new business disappears and churn-rates skyrocket. Smart entrepreneurs understand that it is these moments where cash is most important to enable you to navigate your company through this difficult situation. While in good times your bank account is going to be refilled by deep-pocketed VCs or paying customers, this will become much more difficult during the bad ones. Although this may sound counterintuitive, plan for your worst times with a larger cash reserve on your account.
Tough decisions? Start with yourself
In every crisis, it is important to keep the spirit in your team high. This is doubly difficult, as this particular time may require unpopular changes such as salary cuts or even dismissal of employees. We are proud and humbled when we see that our portfolio founders show strong leadership by starting with themselves and being the first to, e.g., cut their own salaries.
If tough cuts are necessary, it requires clear and transparent communication and in most legislations even mutual agreements between the company and its employees. Great leaders know that starting with themselves encourages commitment from the team and is essential to prepare everyone to temporarily sacrifice for the company’s good.
Investors will support the ones who fight
At some point, you might need to seek financial help from your shareholders or existing investors. Try to impress them with your creativity, decisiveness and resilience during the crisis situation. Investors will offer their help to the fighters — those who do a lot to help themselves.
Be aware that most investors have a complete portfolio to take care of and several founders asking for help. Clearly, VCs would love to support all of their companies, but they might face a situation where they need to aid several ones and are forced to choose. How you address this crisis will give a strong signal to investors and could boost your credibility. Showing strong leadership will certainly be noticed (see above).
Maximise the Upside
In times of rapid change, adaptability pays off disproportionately. Startups can play to their strengths and move fast, eventually surpassing incumbents that are slow to react. In this sense, Corona can also be seen as an opportunity for savvy founders.
Better lose revenue than customers
Most companies are affected by COVID-19 and it is important for founders to have a clear understanding of the details. Close communication is key here as the effects of the pandemic are not always obvious. While Amazon is looking to hire 100,000 new workers to handle the Corona demand, some sellers cannot take advantage of the situation unable to get their products from their Chinese suppliers.
There are sectors and companies that are hit especially hard. Travel is not happening, hairdressers or hotels are not allowed to open, events are being cancelled. Those who are in trouble deserve special attention. It is a good strategy to offer them e.g. delays, rebates or even free use of your product. Get creative and do not be afraid to craft individual solutions to prevent unnecessary churn. It is better to lose some short-term revenue but keep a good relationship. This approach will pay off sometime in the future.
Even little things are useful. Our portfolio company Critizr, offering retailers customer feedback solutions, has set up a simple page called yourcustomerssaythankyou.com to strengthen the bond between communities and local retail.
And smart companies like WeWork tackle the situation proactively. As companies sit on their empty rental office space all over the world and think about getting out of their contracts, WeWork started to offer free rent for some months if their clients prolong their contracts now.
Update your pitch
Unsure how the economical situation will pan out, potential clients may be hesitant to try out your new SaaS product. For sure, they won't find you on any trade fairs. It is essential that you change your sales tactic and pitch. Some of your features may have suddenly become more valuable. Explain how your tech can help to navigate the situation and propel your clients forward.
Clearly, some of your customer segments fare better than others. These you should prioritize in your sales effort. Here, it is important to not only focus on mere revenue opportunities. The goal should be to onboard new clients instead. For those not ready to pay now interesting approaches are free “light” products or an “onboard now, pay later” scheme. Examples are startups like Lingualeo offering free premium services during the pandemic or giants like Microsoft giving free access to their communication and collaboration platform Teams.
Be creative in lead generation
Many companies are using the crisis as an opportunity for lead generation — both in a planned or unplanned manner. Offering help is a great way to build a relationship with future customers. Remember the Critizr website mentioned above? It became a major conversation starter for them, most likely leading to new clients in the future.
A good way to reach out to your target customers is via webinars or other ways of connecting online. An interesting example is the web-expo for flexible industrial robotics organized by drag&bot and we are looking forward to seeing further creative alternatives to meeting in person.
Adjust your product roadmap
Restaurants embrace food delivery, events move online, breweries create disinfectants. Being resourceful can help you keep your company stable or even accelerate your growth. While drastic product changes are not tangible for everyone, smaller pivots or at least a reprioritizations of the roadmap should be possible. If you can, it is important to address new behavioural patterns.
Expecting a surge in requests for retailers due to increased online shopping during the lockdown, the customer-service automation-platform DigitalGenius prioritized product development for their retail clients and, in effect, generated significant traction in this sector. Furthermore, we have seen some spectacular updates within the last months. Restaurant suppliers like Pepper or Choco now deliver food to consumers, the gym membership aggregator Urban Sports Club started to offer online classes. It is interesting to see how fast these companies were able to change their core product.
The world has changed
The world has changed due to COVID-19 and we will never return to the good old days. The hunt for a cure or vaccine may take years and normality is not in sight. Unfortunately, the economy will be suffering for some time and most startups are expected to go through a time of hardship.
Not only are nowadays changes irrefutable, but some are also irreversible. The way we do business and how we think about the future has changed. Now more than ever we need qualities in our founders like decisiveness, resourcefulness, positivity and strategic thinking, enabling their companies to protect the downside and maximise the upside. In uncertain times like these, it may not be obvious what the best plan for your company is, but rest assured that the worst plan is sticking your head in the sand and hoping for business as usual to return. You better be swift and alert!
There is no “magic bullet” — good plans are always complex and take into account numerous aspects. If you think strategically, work hard and adapt, your company could survive this crisis or even benefit from it. A rising tide lifts all boats and equally a crisis hits everyone. It is not set in stone that size and a higher level of maturity are better in the current situation. Mind the doomed fate of the dinosaurs — it may not be the biggest or strongest who win, but the fastest and smartest. And one thing is clear: the world will never be the same, but people will keep doing business.
