Dear Founder #6: on weather-proofing again (with a note on strategies for the unexpected tornado) ….

By ssyc1
April 8, 2020
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Dear Founder,

We feel the need to speak about resilience and being weather-proof again (our part 1 – “building strong and weather-proof companies” – is here). For those of you who find yourselves running out of cash and caught out by the sudden change in the business and funding environment (“tornado”), please see the links at the end of this post (key advice: “extend your runway”!). For those of you thinking about using the crisis as a way to position your company for growth, we wanted to take the opportunity to share here 4 thoughts.

First, this crisis reminds us how advantageous it is being an aligned organization: the more aligned an organization is, the easier it is to maintain business continuity when remote-first, digital-first and distributed and decentralized operations is the only option. We offered 8 tools for building alignment in “Dear Founder #5: managing growth pains”.

Second, if you had been building a business with a clear path to profitability and you know your unit economics well and you’ve been disciplined enough to not depend on vanity metrics, this is a time to give yourself a pat in the back. You would know the levers that can be pulled or pushed to shorten that path to profitability (or reduce the “chasm”) if that is what is needed in a more cash-constrained world; you can anyway find a refresher and benchmark in “Dear Founder #4: not all revenues are equal”.

Third, we cannot stress how important it is to share problems and bring smarter and more experienced people into your organization as a sounding board (for those fortunate enough to have these people around them). Keeping a good sounding board informed and updated is an “insurance” or “self-insurance” policy as when crisis hits they’d be able to offer relevant and useful advice quickly. As a VC, we trust our CEOs to be able to protect the interest of the company by sharing the problem in time (and knowing when to do that) rather than too late (when nothing can help). These were our thoughts on “building a weather-proof company” and we still (squarely) believe in it: objective self-assessment (we often call it “intellectual honesty”) helps with resilience while doing some planning (and ideally with a few people with whom you can bounce ideas and share problems) does the same thing so there’s the capacity to react fast when adversity hits, while your sounding boards – if they are any good and if you are using them well – should help keep you honest. We cannot over-stress how important this is: paraphrasing both Arthur Rock, who did Silicon Valley’s first “venture capital” deal, and Nobel-prize winning physicist Richard Feynman, the easier person to deceive is oneself.

Fourth, build future and future-proof business models. A downturn is the best time to position your company for growth. Your large competitors may find themselves taking longer to react, while your smaller competitors may be short on cash. While you are managing losses, you must also be making plans and moves to gain ground. In terms of your external relationships, conversations that have hitherto been challenging can become surprisingly easy if you’re able to directly impact the P&L. You could even look to leverage these engagements to push through broader systemic changes to relationships and systems that might have been met with internal resistance previously. Internally, this is the time to push for the creation of a high-performance culture, if there were legacy worries before. In a downturn, everyone must perform. If you didn’t or don’t have a strong performance culture – clear, measurable targets for everyone – then create one. Finally, bring the internal and the external together: use the opportunity to deepen your conversations with your best customers and partners, look even more deeply into the user analytics data, and move your product up towards the “painkiller” (vs “vitamin”) end of the “usefulness” or product stickiness spectrum.

A short resource list for getting through big turbulence and challenging times (very useful!):

https://steveblank.com/2020/04/01/the-ceo-playbook-for-keeping-your-company-alive/
https://www.nfx.com/post/28-moves-survive-thrive-downturn/