The good folks at Techstars and Anthemis have organised calls with their portfolio this week about how the Coronavirus pandemic is likely to affect startups. Founders from across the respective portfolios were able to share their questions and first-hand experiences.
So while a lot of people are turning to Ben Horowitz’s (excellent) Peacetime CEO/Wartime CEO blog post right now, we wanted to share more tactical advice on what founders should be thinking about, based on things that were discussed with the Partners and MDs at Anthemis and Techstars.
1. This is likely a 4-6 month thing, at a minimum
In most of Europe, restrictions on movement are currently mooted to be 2 week programs. Looking at the impact in China and Italy, however, suggests that some sort of impact on people’s daily lives is likely to last much longer. Beyond that, the economic impact is likely to take even longer to work through the system, possibly 6 months, a year or even more.
That means that you need to think about what it means for the future availability of funding, your budgeting and business plan, as well as how it’s likely to affect your customers and therefore your revenue. Planning early will help you stay ahead of the curve.
One founder mentioned that during the 2008 crisis, the previous company they founded lost 80% of their revenue overnight as advertisers cut their spending massively. Hopefully it won’t get like that now, though depending on your vertical (hospitality, travel…) things might get pretty tough. The question to ask is if this lasts more than 6 months, what decisions would you take today to mitigate future risks in your business?
2. Survive
The first rule of startups is not to run out of money. You need to know your real burn rate, not your to-the-nearest-50k burn, but your actual burn and how that changes if customers stop or delay paying. Founders need to know their numbers, in as close to real time as possible, and map out scenarios and what you will do in each.
At Cledara, we use Google Datastudio as a free way to pull in data from various sources, including engagement from customers, revenue and bank balances into one place so we know where we stand in near real-time and take data-driven decisions. We also use Zapier to push a handful of key numbers to Slack once a day to keep things top of mind.
By knowing the numbers and planning ahead, you will know what to do as your situation evolves, rather than having to make a quick decision.
The other thing really worth doing is to keep your investors up to date. Most funds are prioritising their time, and probably their money, for their existing portfolio. So if you’ve already got funds on your cap table, engage with them frequently (see below for more on the questions you need to be ready to answer and how and why to communicate with investors).
3. Leadership
Your team has a lot going on. They may not be used to working from home, they’re probably figuring out how to manage their kids who can no longer go to school and they may be nervous about their job security.
As a CEO and a Founder, you need to step up as a leader. It’s not possible to have all the answers, but now is the time to over communicate with the team. Be as transparent as you can about the business, how the situation impacts the company and how it changes the company’s priorities and objectives. There is a lot of pressure on leaders in times like this too, so the more you can do to help the team understand the ‘why’ behind decisions as early as possible, the easier things will be for everyone.
It’s also a really good time to rally the troops around key priorities and boost focus. We do regular company-wide planning sessions at Cledara and we did our most recent one on Friday. This gave us the opportunity to challenge everything the company was doing, and ensure that we were only allocating effort on things that were the most impactful.
4. Team Morale
Team morale is key. There are thousands of blog posts right now about how to adjust to remote working and so we won’t go into that here (though MarsBased’s employee handbook is the gold standard for this).
One tip that really resonated with us was from John Prendergast, the Founder of Blueleaf, that recommended founders encourage behaviours to emerge bottom-up rather than top-down. Blueleaf has been working remotely for a long time and in John’s experience adoption of things to build relationships and team cohesion were much better when they were driven by the team, rather than by him.
5. Plan Ahead
When things are moving fast, it can be hard to get your head up and think about the strategic implications - short term and long. Fred Destin, from Stride.VC, recommends that there are three questions that every founder should be able to answer right now that provide a really good framework for founders:
- How does the crisis affect your business?
- How are you positioned to capitalise on a recovery?
- How capital efficient can you be to weather the storm?
6. Don’t panic into a pivot
Everything is changing super fast right now. The UK government went from a herd immunity strategy to asking people to stay home within 48 hours. Things are likely to keep moving super fast and so today’s data can be tomorrow’s old news.
There may be some good reasons to pivot - perhaps your customers are in travel or hospitality and are going through a really tough time. We heard of one startup that supplied food to restaurants that is preparing to add a B2C offering. This is most likely a good move, but if you’re thinking of a pivot because your funnel is slowing down, you may just want to wait a little. In a month, you’ll have way more information and probably be able to make a better decision.
7. It’s a time for solidarity
The most loyal relationships you’ll ever make are likely those forged in the heat of battle. Even if your company isn’t under pressure, some of your customers could be. Be human in your communication with them and acknowledge the situation. If some of your customers are late paying, consider cutting them a break and writing off some revenue to help them out if you’re able. Be human first, build the relationship, then think about business.
8. Funding rounds will still happen, but they could be a bit more complicated for a while
According to Techstars’ Jenny Fielding, now is not the time to start fundraising with funds that you don’t have a relationship with. Most funds are going to be focused on helping their portfolio right now until the impact is better understood. As a founder, be sensitive to that and consider waiting a little while and waiting before you reach out, if you can.
If you can’t, and you need to look beyond your existing cap table, speak first to the investors that you have the strongest relationship with. One small positive from all this is that you’re likely to get accelerated ‘No’s’ from investors that just aren’t that into you, much faster than you would in more normal times.
9. Double down on your comms
Now is not the time to go quiet. In normal times, regular communication to your investors, advisors, mentors and wider network helps them help you. This counts double now, as it’s much more likely than usual that you’ll need to call on support from your network. It’s also not the time to sugarcoat things or hide reality. Be honest, direct and consistent. Own your metrics. They are what they are, so be honest about them.
Keeping your network up to date about what’s happening, what you’re doing about it can help you raise money when you need it (see Mark Suster’s article about investing in lines not dots). We’ll be posting an article tomorrow about how we do investor and network updates at Cledara. Stay tuned!
10. These are exceptional times, you won’t be hung for your metrics
Once you get to product market fit, metrics become super important. Investors will want to see that you’re able to reliably hit a plan, sales teams are consistently hitting quota and there’s evidence you’re able to scale your business.
This period is likely to result in a period where growth is lower than planned. Normally, this would be a cause for concern for prospective future investors. Techstars’ Eamonn Carey believes that this shouldn’t be a problem - everyone will know what caused it and will move on.
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We hope these tips were helpful. Thanks to Anthemis and Techstars for organising the sessions. If you’re a founder and we can do anything at all to help, let us know!
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