Coronavirus is what some are calling the Black Swan Event of the Decade. (Hopefully we only have one). Many firms are sharing their “what-to-do lists” to keep you and your family safe. Since we are not medical experts, but financial and business experts instead, we would like to offer a few thoughts and suggested actions to take to help keep your business secure during this unprecedented event.
First and Foremost: Stay Positive.
We are encouraging our partners to maintain a positive mindset – something that is hard to do when so many news outlets are only talking about the negatives. Amazing things can happen during these events too, and some of the most successful companies have emerged during times of great change.
Google and PayPal persevered through the aftermath of the dot-com bust. More recently, Airbnb, Square, and Stripe were founded in the midst of the Global Financial Crisis. When these events happen great companies find ways through and are stronger on the other side.
During the past week we have consulted over a dozen early and late stage CEOs about their plans and what they should be thinking about next. We suggest you start by questioning all the normal assumptions about your business, especially the following:
- Your level of outreach to your stakeholders: During times of crisis the frequency and quality of your communication to the company’s stakeholders is an item many CEOs ignore. Many simply do what their attorney or PR firm advises and follow the normal cadence.VF recommends – Companies and their leaders reconsider the normal frequency and consider a 10X approach. Reaching out to all stakeholders is vital.
- Pull your leadership team together for a 15 minute daily standing meeting where you cover each team member’s number one priority and the very top issues of the day.
- Reach out to all of your clients weekly at minimum, and depending on the service you perform potentially more frequently.
- Communicate with your key vendors to ensure consistent delivery, or any potential changes that you may need to make aware, or be made aware of.
- Updating your investors is critical. Discuss with them how you are changing your tactics and what you are doing to protect and potentially expand the company during this time. Keeping your stakeholders close, calm and informed builds a coalition of people who will work with you during this black swan event.
- Your cash needs and levels. Do you really have the runway you think? We would bet that you don’t having seen several of our clients lose accounts in the last week. The knee jerk reactions are usually to 1) assume all your customers will pay like usual, or 2) immediately cut costs to preserve cash. VF recommends – a measured approach.
- Reach out to your clients, and if practical, evaluate each client and the effect this Black Swan event will have on them.
- When reaching out proactively ask them how you can help them more and use this as an opportunity to build stronger relationships.
- Recalculate your cash runway – do sensitivity analysis around customer retention and payment timelines.
- What is your new customer sales cycle? – When an event like this happens, companies become deer in the headlights. Everything stops or slows down. VF recommends – assuming that the sales cycle will take longer, budgets will freeze or vanish instantly.
- Quickly move to close “approved” sales and watch the sales pipeline intensely.
- Take a deep look at your sales and marketing language and adjust it for what will become the new (temporary) normal. An example is to emphasize the safety of the purchase or the cost savings.
- Re-evaluate expansion projects and/or Capital Spend – investments in the future create the company of the future. But unless you have financial independence, you must determine if the projects are sensible in uncertain times. VF recommends: Consider scaling them back or lengthen the timelines. By slowing some higher risk projects, you protect the company in the short run by preserving cash but stay in the game over the longer term.
- Fundraising – We have seen fundraising efforts dry up overnight. The terms of a raise have changed overnight. VF recommends:
- If you are not currently raising money, don’t ignore your current investors or bankers. Reach out to them and give them more frequent updates. Pull them closer to you and build more trust. They will be the first investors you talk to if you do end up needing short-term financing.
- If you are raising, change your view and consider alternative forms of funding and brace for wholly different terms. First, seek Bridge financing, then look into SBA loans and finally bank financing (in most cases a longshot).
- We would advise putting equity raises off until later summer or early fall.
- If you can avoid raising money or reduce the amount needed you will be more likely of success and at the least avoid poor terms on the money raised.
- Remember, you are scrappier than you give yourself credit for being. At the very least, fundraising will likely take longer than you think, so plan for it.
- Business Strategy – Their will be a fundamental change in view. Goods and services sought yesterday will be abandoned tomorrow. The Get Big Fast or Blitzscale efforts may go away entirely.VF recommends: Consider your current strengths.
- If you are cash safe, then use this to your advantage especially if you have cash and your competitors are cash poor.
- If your key value proposition is that you save companies money, then press that advantage immediately.
- Look at your competitors, are you in a stronger position than they are? Consider acquiring or merging with them. Be bold!
- Use this opportunity to “steal” their customers. Being bold when others are fleeing has worked for many companies in the past.
- “Be fearful when others are greedy and greedy when others are fearful.” – Warren Buffet
- Cash Conservation: If your company was caught in a bad position and this black swan event is making things worse, don’t give up. You must take action now. VF recommends: Determine your “Lifeboat” strategy. Which areas are performing well and which are not. Let the areas not performing, go. This includes business units, product lines, customers, and even employees.
To reduce costs, consider the following:
- Review vendors and call them – look for relaxed payment terms or even negotiate lower prices.
- Call lenders and seek extensions or better terms on debt – you will realize you are “their” customer and they want to retain you as a client.
- Review funds held for marketing and reduce spending by an appropriate percentage. Re-evaluate your Customer Lifetime Value as this will shrink and change the amount you should spend on acquiring new clients.
- Consider payroll deferral or reductions of C-suite executives and/or VPs. And to reduce the burden on these people who will probably be working hard during this time consider swapping options for cash bonuses.
- Consider reducing or eliminating bonuses – replace with options.
- Cut or reduce non-essential development.
- Cut non-essential new program project spend.
- Remember to talk to investors now and prep them for additional investment. Tell them about the measures the company is taking to weather the crisis.
- Draw down lines of credit now and put the money in the bank to use later. A few points of interest may be worth it to you.
- Discuss companywide payroll reductions of 5% to 10% (or more) so that everyone can remain employed in the short run
Slow Down, Evaluate and Execute.
We have seen panicked CEOs burn the company down by overreacting to Black Swan events by cutting fat, muscle and bone. We have seen CEOs inaction ruin companies that could have been saved. Now is a time for action. Pull your employees, vendors, customers and investors in close, over communicate, test all of your assumptions, be bold where you can and conservative where you must.
Businesses that deliver superior value to their customers thrive even in these circumstances. Now is the time for calm leadership and a focus on business fundamentals. Make every dollar count.
Entrepreneur in Residence Venture First, Endeavor Entrepreneur, Co-Founder and Board Member of Capture Higher Ed., Leader at Untitled, LLC.