Three Essential Pieces of Advice for Founders Hoping to Survive the Pandemic
The coronavirus shock has changed the world for investors and founders alike.
Years of strong economic growth and plentiful funding have suddenly given way to fear, collapsing revenues, and the need for significant staff reductions. Founders have been wrenched away from their comfort zone of growth to having to face a very different set of pressures, some of which they don’t have the aptitude, skill-set, or experience to handle well. Many founders don’t have the experience of previous crashes or a deep well of supportive resources to help them adapt, survive, and emerge stronger on the other side.
My journey as an entrepreneur has been one of alternating innovation and survival. During the creation and growth phases, one must be focused on the long-term, on vision (product & strategy), and on recruiting. During the survival phases, one must be myopically focused on the short term, on liquidity, and creating a culture of calmness.
Below are three core pieces of advice I’m giving to fellow founders in our portfolio at this time, which are applicable to entrepreneurs of all stripes managing through the COVID pandemic.
The first, highest priority to-do is the toughest because it cuts against the grain of a founders’ personality and mindset as a builder. The second two can actually play to founders’ strengths of intuition and empathy.
1. Cut hard, cut fast.
In an environment of collapsing demand, the first priority is survival, and that requires a relentless focus on liquidity, liquidity, liquidity. Founders must act quickly and decisively in reducing their fixed costs as fast and as hard as possible. It’s an approach that tends to clash strongly with their personality and skill-set, though. Founders are optimists and creators. They often got to where they are by either being exemplary visionaries, technologists, or salespeople. However, environments like the present require a crisis manager disposition of preparing for the worst, a high degree of financial literacy, and the emotional ability to part with some people that have been with the organization for a long time in order for the company to survive.
Lacking these skills and experience themselves, founders need to pull in support from those who do, such as private equity partners or experienced operating managers within their businesses. The importance and primacy of cutting costs fast and hard can’t be overstated. Yes, it is disappointing and painful, but not as painful as either the entire company going under or having to come back repeatedly with more and more cuts that drain staff morale by leaving the impression there’s no end in sight.
Finally, by dragging out the inevitable, founders also risk losing focus and distract from the time they should be spending on planning the company’s post-COVID future. While your company is focused just on survival, a competitor may be taking share or outflanking you on next-generation product development. “Taking the punches” and getting back on your “front foot” is essential to getting back to growth.
2. Show compassion.
There is no escaping the unpleasant reality that people’s jobs are going to be a big part of these fast-and-hard cuts. Most founders, in today’s growth companies, manage asset-light businesses where people are the primary cost. That said, people are by far any great company’s most important asset. And, cultures can be forged or destroyed in times of crisis.
The scooter start-up Bird may not have been faulted for laying off a third of its staff, but it will forever have to live down doing so via an impersonal voicemail from its chief communications officer, versus in-person communication from its CEO. Job cuts, when necessary, need to be made in a way that is transparent and compassionate.
The good news is that empathy plays to the core strengths of many founders as leaders with high emotional intelligence whom people want to follow. Still, founders can be emotionally resistant to cutting people, especially ones that may have helped them get from A to B but aren’t the right ones to get them to C. In addition, there’s often a tendency to try to sugar-coat harsh realities and avoid full transparency with staff about a tough situation.
In my experience, that’s an insult to people’s intelligence. In a crisis like this, most employees are going to be plugged in enough to the media and industry gossip to understand the prospects for the business and the necessity of job cuts or furloughs. They want certainty, even if it’s not good news. However, they deserve an open and honest explanation and empathy for the financial and emotional toll of losing one’s job. Put yourself in their shoes and treat them as you would a friend -- with sensitivity and compassion. This means helping laid-off employees get the resources they need, such as job-search assistance and continuing healthcare coverage through COBRA. For furloughed employees, it means keeping them updated on the business and trying, if possible, to give them some level of activity to manage their personal finances.
3. Focus on the future.
The first two steps outlined above are about survival and creating proper mind-space for a no-less important task: re-imagining and planning the future.
With necessary cost reductions behind them, founders can focus on how to make the business better on the other side of the crisis via new strategies and product launches. This is another step that plays to founders’ instinctual strengths of optimism and inspiration. Companies must be self-aware and pivot frequently to maximize their potential. Founders must outline a vision and then leverage process-oriented operating executives to test their instincts and formalize the vision into an executable plan.
In my experience, some of the best ideas and innovations are forged from necessity and survival. The COVID public health crisis is a time of sadness, grief, uncertainty, and anxiety. Those things we cannot change. But as founders, we can turn the crisis into a time of clarity, removing clutter, and creation. This is our duty to those we serve.