Never Let a Downturn Crush You
Like many entrepreneurs, I am deathly afraid of my business’s yet-to-happen downturn. Setbacks hit me hard. I can’t stomach negative signs or the number zero.
A few months ago, I was having a particularly bad day when I lost $20,000 in revenue in a span of two hours. I reached out to one of my mentors, expressing how ready I was to give up. He responded with a sentence that completely transformed my outlook:
“When you’re running a company, the power is in your hands. It’s up to you to achieve the results that you want.”
This statement hit my internal ‘reset’ button and inspired me to dig deeper into the growth paths of some of world’s biggest startup successes. I learned that seemingly ‘super-human’ founders are susceptible to the same challenges as the rest of us -- bad luck, lackluster economies, and soul-crushing downturns.
When chaos hits the fan, it’s up to us to outsmart the probability that we will fail and keep moving forward. The following three stories will show you what I mean.
1 - Redfin survived the biggest real estate downturn in history.
When Redfin launched its technology-powered real estate brokerage in 2006, the team couldn’t have guessed that just two years later, the housing market would suffer a major collapse. Almost overnight, and very shortly after raising a $12 million Series C round, the company found itself under water.
“We had to lay off 20 percent of our employees, and beg venture capitalists for enough money to keep the lights on,” says Glenn Kelman, Redfin’s president and CEO.
As Kelman explains, the emotional experience of cutting back Redfin’s team was soul-crushing.
“We have always been a mission-driven company: dedicated to putting the customer first, but also to having a different relationship with our agents than the dog-eat-dog world of most real estate brokers. That rhetoric seemed hollow during a layoff. I wanted to hole up in my office and cry.”
Instead, Kelman remained strong and made some of the toughest tradeoffs that he’s ever faced in his career, realizing that the decision to cut back the team would be the best possible path forward.
“While I certainly saw a layoff as a deeply inhumane thing to do to my friends at Redfin, I also saw it as the first act of a recovery,” says Kelman. “As painful as it was, I was very careful to cut deeper than it seemed we absolutely had to, so that we wouldn't have to cut again. After all, it's the second layoff that breaks a company's heart for good.”
Meanwhile, Kelman kept communication lines open with weekly reports and a personally authored newsletter. His team stopped thinking about raising additional venture funding and instead, invested all time and energy in building the core product.
“We never lied to the employees about the seriousness of our situation, but we never stopped insisting that happiness was inevitable,” Kelman says.
As of March 2014, Redfin serves 23 major markets in the United States and has closed $13 billion in home sales.
2. The now-public Zendesk was the unforeseen outcome of a previous failure.
In 2001, Zendesk founder Mikkel Svane had no idea that in 13 years, he would be leading his cloud-based customer service platform through an IPO. Back then — before Zendesk was even an idea — Svane was struggling to keep the lights on at his failing software company, Caput.
“The dot-com crash of 2001 came fast and hit the business hard,” says Svane. “Suddenly no one was buying the software, and we had no way to cushion the impact of the crash. As a result, we had to let a lot of people go. It was really tough to have to lay off friends and colleagues and then continue work the next day as if things were normal.”
That same year, Caput shut its doors permanently. Svane had no choice but to move on — a situation that left him feeling devastated.
“I had just turned 30, and for almost four years, Caput was the only thing that I had done,” says Svane. “This business had been my entire life. I was not depressed about losing my livelihood; I was depressed about losing the only thing I had.”
Thrown into a new reality, Svane’s immediate next step was to get his first real corporate job. He accepted a role as general manager for a German consulting group called Materna. His job was to resell various customer service desk software products and deliver the consultants and services to properly implement the software, from a technical and business process perspective.
It’s this vantage point that helped Svane see a need for Zendesk in the market.
“At this job, I saw the flaws of bulky enterprise software and clunky processes cost a lot but didn’t achieve much,” says Svane. “This is where I began to imagine where the industry could go.”
In 2005, Svane teamed up with his Caput co-founders to sketch out a vision for the next generation of customer service platforms. In that moment, Zendesk was born. Today, Zendesk serves more than 50,000 customers and has a market cap of more than $1B.
3. Calfinder almost imploded due to poor product/market fit.
In 2005, Gabriel Luna-Ostaseski founded home improvement marketplace Calfinder, and in a few short years, grew the company to $8M in annual revenue. This success was due, in part, to the company’s 24-person sales team, which was making tens of thousands of outbound sales calls per week.
“Deal volume shot up through the roof and we were growing new bookings faster than ever,” says Luna-Ostaseski. “Things continued this way for another three months and we were riding high, thinking that everything was moving in the right direction.”
Almost suddenly, this growth trajectory reversed itself. Calfinder experienced massive customer churn, and the team started receiving heavy complaints for poor service. The company had months before it would need to shut its doors.
“We realized that everything that we had built had to be torn down and rebuilt all over again,” says Luna-Ostaseski. “I felt like I had been punched in the gut and couldn’t catch my breath — that I wouldn’t be able to breathe again. Slowly, the feeling subsided, and I regained my composure.”
Luna-Ostaseski realized that although his business was growing, customer quality was growing. Moreover, only three of the team’s sales reps were closing deals. This realization forced Luna-Ostaseski to pivot customer segments — to sell to mid-size organizations instead of small business owners. Luna-Ostaseski also made the tough decision to cut 70 percent of his staff.
“It would have been easy to get wrapped up in all the emotion and feelings of failure,” says Luna-Ostaseski. “Instead, I tried to uncover what was going right as opposed to just viewing everything as a failure. We were able to see areas of the business that were growing faster than we were previously aware of.”
Calfinder’s revenues doubled over the next year.
In entrepreneurship, every downturn is a springboard towards a new direction. Every setback is part of a larger story, and every tale of success rests on the shoulders of persistence.
Related: 10 Rules for Surviving the Recession