Startup Office Hours

Founders and team leaders, we’re here for you.

All of our former senior operators - who have been through multiple downturns - will host virtual office hours to answer your startup questions on how to respond to emerging challenges. After every session, we will summarize each question and answer below. Have an additional question? Email [email protected] with the subject line "Virtual Office Hours" and we’ll answer as soon as we can.

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Jump to a question:

    You’ve lived through three downturns and have mentioned the nature of them determines what the right actions are. What are the right actions for today?
    • 2001 was led by massive overvaluations of tech companies and total closure of capital markets for tech companies. The absence of real revenue and customers was catastrophic.
    • 2008 was a financial market crash caused by challenges in financial markets, so tech companies not selling to that sector weathered it differently.
    • Today’s crisis is led by a medical pandemic. This is non-market. COVID-19 is sucking demand out of the economy in many sectors. Unclear how long this will last, but what is better is venture and early, mid venture markets are intact and businesses that exist today are rooted in better fundamentals.

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    Key lessons you learned coming out of 2000 or 2008 as a cofounder that I can apply today?
    • Be a leader first. Communicate - even if the news isn’t good, you need to reach out and connect with your employees, customers, board, and investors in the way that they deserve and expect.
    • People who responded the quickest were in the best shape. Don’t wait for things to get better. Companies that act quickly and make hard calls are best suited to emerge from a tough economic cycle in advantaged positions.
    • Manage expenses - crises come quickly and don’t let you adjust.

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    What should CEOs and their exec teams prioritize?
    • Your job as a founder and leader is to unify your team. Comfort and communicate. 
    • Plan for scenarios that are possible, and act to protect your company, employees, and customers. Gather as much data as possible and adjust plans accordingly. 
    • Assure your customers and update them on any level of support available and modified services that are offered.

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    How do I work with my leadership team to come up with a new plan?
    • No one knows how long the economy is going to be impacted so start by making a determination. Do you have enough cash and resources to last 18-24 months?
    • Start with demand. What is happening to customers? How badly are they hit? How likely are new customers going to take on a new project? Score your pipeline rigorously by what vertical industry prospects are in and any other criteria that makes sense.
    • Create high, medium, and low scenarios. High scenario- reduce sales by at least 20-25% (unless you’re in a rare category where you’ll benefit from or are unaffected by the current climate); Medium and low- reduce sales forecast by 50% or 75%.
    • Ask your prospects to force rank your product and deal versus other ones so you can access the truth

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    How do I adjust my sales and revenue forecast?
    • Whatever your forecast, reduce by 20-25% in high case and 50-75% in medium/low scenario.

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    How should I look at expenses? How long should I make my cash last? Should I draw down venture debt? 
    • Make sure you have cash for 18-24 months so modify the budget accordingly. 
    • Start with non headcount spend - consultants, contractors, travel, some marketing like events. Then do a prioritization of projects - identify non essential and nice to have projects. Anything that touches customers and supporting your installed base should maintain high priority. Customers will remember how you treat them during this period.
    • The hardest things to assess are related to people. In 2008 at Merced Systems, the first thing we did was remove executive bonuses. The exec team was 100% comfortable with doing this. We then looked at cutting executive pay. Furloughs and making some employees part time are options instead of doing RIFs. Last resort is reduction in staff.
    • Consider drawing down venture debt (know if you have a prepayment penalty or not). It’s better to have the flexibility and the runway extra cash enables.

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    I feel like I should consider a staff reduction but don’t want to let anyone go in recession - how should I think about it?
    • Your company values should guide you during a moment like this. This will show who you are and how you treat people.
    • Have a system and methodology for how you go about RIFs. Need to be able to look anybody in the eye and tell them why and that you had to look after the health of the company.
    • Look at roles that aren’t related to generating revenue or supporting customers. Look at people who were already not living up to the standards or values of the company.
    • See what government options are available. 
    • You want to maintain top employees and have them feel appreciated.

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    For companies with every large ACV deals in enterprise SaaS, how do you assess impacts on the sales cycle?
    • Inspect and validate that a deal is real in the pipeline - use whatever scoring methodology you normally use. Talk to someone higher level in the organization to vet.
    • Ask the prospective customer to stack rank you against other initiatives
    • Assume big deals will either be delayed, smaller in size, or not happening.

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    Is this a good time to experiment with alternative bottom-up adoption approaches? Especially for early-stage companies which are pre-revenue?
    • No, this is not the time with so many unknowns.
    • Focus on your existing installed base - people who know and trust you and understand the value proposition.
    • If there are opportunities for you to adapt your product for the current times based on what the customer is already doing to support their organization then do it, but risk is compounded right now to try new experiments.

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    If we are currently planning for 12 months of runway, would you suggest we cut early and prepare for 18 months? Or continue with the current plan and then see in 3-6 months if the situation is improving/worsening?
    • Every company is different, but 12 months of runway is probably not enough. Make sure you have cash for 18-24 months
    • If money is offered - whether its venture debt or investors - take it. Now is not the time to be overly sensitive to valuations and dilution given we don’t know how long this will last.

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    What's an acceptable growth rate during a downturn?
    • Anything. Don’t worry about growth rate right now.
    • Expect decline in revenues. Objective is to stay alive.
    • Make good decisions - lead the team, manage cash, any growth is good.

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    How should I manage my board at this time?
    • Have 1:1 calls with your board members - not just scheduled board group calls. Have more frequent meetings with the investors who can really be champions for your company in case you do need capital.
    • Everyone is letting their guard down. Ask what they want from the company and ask for really honest feedback. 
    • In the end, you are the CEO so consider all feedback, but you need to make any final decisions.

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    Should we shift our product strategy to serve a customer base that will be more remote and more fiscally conservative?
    • Maybe. If you do bottoms up work to see if your current product base can support you during this period ex: not in travel, hospitality - have direct conversations with your customer council on how to better meet existing customers. Sell to the pipeline you already have. Do it in partnership with the customer.
    • Recessions are hard enough. Adding new segments that don’t know you is really challenging. That would be the last result.

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    How do I communicate this new plan to my company? How do I keep morale high?
    • People don’t just want to hear good news. Don’t confuse good news with maintaining morale. Employees want evidence, transparency, and realism.
    • Articulate your plan based on the evidence you and your exec team have and the method you used to develop the scenarios. In absence of communicating assumptions, that’s where people lose faith so show how you made your decisions. It will instill confidence.

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    How do you know if investors are actually serious right now and not wasting time?
    • Assume many are not and have direct and transparent conversations. 
    • Consider asking your existing investors to ask the question on your behalf.

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