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So now what do we do? Survival tips for startup CEOs.

Dear CEOs:


I have had the experience of working through four recessionary cycles throughout my career to date. Beyond proving that I earned these gray hairs, it’s given me perspective on our current situation. So if you’re a CEO, an investor, or an executive in training, please allow me to pass along some pearls of wisdom.


First and foremost, these cycles always end and we will come across stronger. When it will end this time around is anyone’s guess and predicting how long it will take (or how much grief we will suffer along the way) is a fool's errand. But do know that we will get back… we always do. Have the confidence that it’s just a matter of time, excruciating as it may seem in the moment.


Second, this is a time in which your leadership will be tested. Careers will be made (or broken) in this moment and how you act (and the actions you take) will be noticed. In retrospect, my career advanced further in the internet winter of 2001 than at any time before or after. Your company, your investors, and your customers are looking to you for leadership and they will value knowing your perspective on what will happen. You might be right or you might be wrong, but this is an opportunity to set (or reset) your direction and to provide guidance to your organization. Take advantage of this moment or run the risk of letting events roll over you. Your choice.


On that note: it’s really important to remember that so much of what is happening is out of your control. As CEO, you cannot change the overall macro conditions or the coronavirus testing capabilities or our government's inadequacies. But what you can do is manage what’s in your control. Focus on the things on which you can have an impact and make positive change. Everything else is out of your control and you’ll have to roll with it. Accept that and the scope of responsibility becomes much easier to manage.


For a startup, your primary mandate is to control your cash. This shouldn’t be news but it’s even more critical now as additional financing will be, if not impossible, certainly harder. If you haven’t already, start working the spreadsheet and determine exactly when you expect to run out of cash in the worst case scenario… and then figure out how to extend that by at least six to twelve months. Plan for everything to go wrong, i.e. new business sales tanks, existing customer churn accelerates, etc. With those assumptions, when will you run out of cash? And how can you extend it as long as possible? Here are a couple ideas to help on that front:

  • Your biggest expense is likely salaries along with the care and feeding of your employees (i.e. benefits). I am of two minds on how to approach this: on the one hand, now is the time to definitively take action to reduce your employee cost base as quickly and as decisively as possible. The worst thing you can do is to cut too lightly and then have to repeat it over and over in the coming months (i.e. death of a thousand cuts). Nothing is worse to the existing employee base than the on-going uncertainty of more and more layoffs to come. If you decide to take employee reductions, do it rapidly and aggressively so you don’t have to do it again.

  • On the other hand, given the uncertainty of these times (maybe we bounce right back in a couple months??), you don’t want to lose your talented employees if you don’t have to. Nothing would be worse than having a decimated team during a quick recovery. So here’s an approach: model out a scenario where the management team takes a temporary pay reduction of xx% and everyone else reduces by a lesser percent (you might want to have a third path for sales people who will likely see their commissions drop dramatically). By sharing the pain across the company, can you avoid layoffs of your talented team? It’s worth modeling out and exploring.

  • On other expenses, assume that everything is negotiable from now on. Talk to your key customers and ask them what it would take to get them to annualize their payments right now. It would be worth a reduction in pricing to make this happen. Would they be open to paying sooner than the customary 60 (?) day cycle? Would they pay more to get a longer pay cycle? Explore alternatives.

  • On real estate, if we are really now in a recession, the market is about to be flooded with new space and it will be a buyers market for the first time in a long time. Talk to your landlord and see if they will reduce your monthly rent in exchange for a longer term commitment. Or keep an eye for new space coming on to the market. You might be able to bend your real estate cost curve dramatically as things progress.

  • On your other expenses, talk to all of your vendors. Let them know your situation and what you are trying to accomplish. They are probably struggling as well but you might be able to find some common ground that helps your cash needs.


On the cash note, stay laser focused on your cash-out date and fixate on the incremental extension that you can create. It’s that additional runway that you create which will make all the difference in the world. Update it regularly as events occur and make sure the right people (including your investors) are keeping a close eye on this metric. Stay in front of this.


Now is a great time to reach out to your important customers. They are feeling pain, most likely looking at how they can make cuts, and would benefit from hearing from you. Years ago, there was a commercial for United Airlines which has always resonated with me: an executive team learns that they lost their biggest customer... fearful of being fired, they approach the CEO who hands out airline tickets and tells everyone to get on a plane to visit their customers. Probably not the best time to get on a plane today, but the concept holds.

Stay tight with your customers, find out how your company can help them, and then grow out of this business cycle together. One of my CEOs has already sent a note to all customers and prospects offering additional services to help.


Furthermore, now is also a great time to stay closer to your employees than you have ever been. They are surely feeling stress (both in business and in life) and your interaction may help alleviate that. Go deeper in one-on-ones and team meetings than you normally do; let people see you confidently being a participant on calls; simply reach out to people (especially those who would most benefit from some support). Keep in mind that for a lot of people, the proverbial work-life balance might now be way off; listen to their concerns and look for creative ways in which you might be able to address them. Particularly in this period of WFH, make yourself accessible, visible, and open.


Speaking of employees, these periods are the time to deepen your relationship with your stars and leaders. For once, you’re in a situation where it’s less likely that restless employees will jump ship for a better offer. If your folks feel like your company is strong and has high potential of succeeding, they will stick around as the risk of external uncertainty is high now. Make an effort to reach out to the high performers and let them know their work is appreciated. It will go a long way when the rebound occurs.


Communication is more important than ever in these times. Finding ways to reach out to teams (particularly distributed teams in today’s remote work scenario) is super important. I always look to the airlines as the poster children of poor communicators. When your flight is delayed, all you care about is getting a regular updates and knowing someone is staying on top of the situation, even if there isn’t much information to share. Frustration and anger results in the absence of any communication. You may not have much news to share, but this is the time to stay in touch, stay connected, and listen well. Find ways to communicate and build your work community.


Finally, and maybe most importantly, be a good person. Recognize that in these trying times, you have advantages that your employees and your neighbors probably don’t. Listen to them, care for them, and help them work through their issues if you can. While you may be unsettled, remember that your teams, neighbors and your community are too. We’re all in uncharted territory and you can help.


We’re all in these uncertain times together. We will absolutely get through to the other end, it’s just a matter of time. How you operate in this trying environment will resonate throughout your career and set your company up for success (or not) as time goes on. Although these times are, as one of my CEO friends said, “interesting and testing,” these are the times for you to make your mark.


Be safe, be confident, be successful, and please let me know how I can be of help.


Doug


P.S. Wash your hands.

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