As it already passed a few weeks of lock down and social isolation, many founders and teams have started to face a brutal reality: they have started to lose customers, some customers are negotiating lower contracts, payment terms for receivables have been prolonged, access to funding is harder.
Here are a few practical advices.
Leadership
Put your team’s health first. In the case working from home is not possible in all circumsatances make sure measures related to disinfection, work is shits, safe working distance are in place.
Stay focused and agile. CEO & founders should make sure the whole organisation is aligned behind a few key priorities, they are not paralysed by fear, team cohesion is stronger than ever and sense of urgency and reaction to it is sky rocketing.
Leadership should navigate the business through uncertainty and complexity, make sure organisation is united and the activity is not freezing, assure liquidity level needed to move forward.
Accessing and building new networks of founders, experts, etc is critical in gaining insights and perspectives from people with diverse backgrounds. Understanding the medical developments on finding a treatment and vaccination scheme for COVID 19 will give an insight on how fast the social distancing measures will be relaxed.
Customers
Stay even closer than in the past to customers to understand how their business is affected, which are their changing priorities and how your startup may bring value to this new priorities. Be aware your value proposition is changing. Opportunities will arise by being closed to them and building a stronger relationship in tough times will give you edge on mid-long term.
Assess regularly your customers using a simple matrix (1.How vulnerable is to the crisis? 2. Which is the impact on your business?) to understand the potential impact on your business.
Accept lower level of subscription and payment, even short term postponement, if this will help you not to lose your customers. This will affect your CLV but you will not have a new CAC.
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Cost & Cash management
Reduce your cost structure as much as you can to make sure you will cover your burn rate for a period of 12–24 months with your current cash and estimated receivables.
As in majority of cases this imply a salary cut, CEOs & founders should lead this. In the case salary cuts are not enough, suspend on short term employment agreements.
Cut the costs or postpone any not critical tools and services for the business in current circumstances. Renegotiate rent cost as many landlords will accept to do this on short term, to have you as customer for the mid term.
Suppliers
Due to lock downs, supply chain and logistics in many business are significantly disrupted: production capacities closed, time to deliver expanded, COGS increased, short term unavailability of human resources, lower productivity due to social distancing measures, etc.
Make an assessment on your critical suppliers to have an understanding the current and future implication to your venture, based on the same criteria as in the case of customers and build some contingency measures (higher stocks, lower payment terms, etc).
Funding
If you are fund rising during these times, be aware the framework have changed and the funding supply is lower. VC’s LPs are becoming more cautions and risk adverse, they have different opportunity costs and VC’s access to funds will become harder. Therefore, funding will go slower, the number of deals will be lower as in the past and the value of the funding rouns will be lower.
VCs are also changing the perspective. Many of them will avoid investing in the industries/verticals which are significantly affected by lock downs and social distancing measures until they will build a better understanding on how the future will look like.
A new focus for VCS will be to understand if your cash covers your burn rate in different revenue scenarios and which is your cash flow and cost management measures you are currently undertaken in those different business scenarios.
Make sure you have a new business plan which makes sense in the new reality. The previous one is obsolete. Don’t be afraid to say you don’t have all the answers. Nobody has. What is important is your adaptive mindset and your actions.
Valuations are changing during crisis, either up, for a few, or down for the majority of startups. The cost of capital these days is significantly higher then in the past. Don’t argue and don’t spend the most of your time on defending this. The valuation of your startup may be 0 in a few months if you will run out of cash.
Discuss first for funding with your current investors, even this will imply a different valuation than the last one, understanding which will be the implications of dilution to founders. 2nd option should be VCs you have been engaged with in the past.
