A Roller Coaster Ride: The Ups And Downs Of Building A Startup During Uncertain Times By discussing five of the biggest challenges his tech startup faced during the COVID-19 crisis, Swae founder Soushiant Zanganehpour delves deep into the many nuances of keeping a business afloat during unprecedented crises.
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Back in 2019, I shared with Entrepreneur Middle East my company Swae's founding story, and our big vision of the need to upgrade the decision-making process for organizations and government institutions, so that they become more compatible to the needs of the future, as well as the direction the world was headed in. The article allowed us to share the common trend we saw across many types of organizations in which most people feel like they lack a voice, and that they are unable to influence the major business decisions made that have an impact on their lives.
This is often the consequence of either closed cultures, outdated structures, or an over-reliance on a top-down decision-making process. As a consequence, many in such companies are disengaged, and the impact on the organizations is very visible– 3x higher disengagement rates, 3x higher absenteeism rates, and 34% lower productivity rates per employee on average. Thankfully (though slowly), this trend is causing many leaders to come to terms with their structural or cultural shortcomings, and begin reconsidering how they include others in decision-making processes, shifting company cultures to be more inclusive.
Even so, today's most consequential institutions (governments, corporations, international institutions) make their most important decisions through top-down hierarchical processes. They invite stakeholders' to share preferences through one-directional and periodic surveys or consultations, and use representatives to filter information up the hierarchy precluding regular, meaningful, and unfiltered participation of most stakeholders into the process from the bottom-up. Resulting "decisions" appear to be foregone conclusions and the process some tokenism to appease stakeholders.
But our ever-advancing communication technologies are challenging these outdated processes and cultural artefacts, enabling direct, instantaneous and peer-to-peer communication, allowing for anyone to make their voice heard and for any brave leader to efficiently access distributed intelligence from the crowd. Indeed, we're even seeing the the first-ever forms of distributed autonomous organizations (DAOs) that control billions of dollars in assets and are governed based on collective input and bottom-up decision making.
Over this period, Swae began carving out its niche and penetrating the market. The platform amassed close to 40,000 users from clients all over the globe, including some of the world's top organizations such as the United Nations, the governments of Mexico and Chile, as well as blue chip corporations such as Bosch, Etihad Airways, LifeLabs, and EMC Insurance. After winning the New Shape Prize and securing a CAD750,000 non-dilutive grant, we were able to successfully fundraise, 20 months later, an additional CAD750,000 seed round (a 50% increase from the initial CAD500,000 raise) led by William Eisenmann, former Head of Engineering at Netflix and other notable investors. We even had the time to produce a swanky explainer video showing how Swae works– condensing a rather complex technological concept and narrative down into something relatable and fun for anyone.
But since publishing the article in 2019, no one could have really predicted that there would be a global pandemic that would turn every assumption we had on its head. From the unique lens of Swae, the coronavirus pandemic was a positive forcing function– the challenges that organizations face with adapting to change, improving inclusivity, and decision-making processes only accelerated, and came to the forefront. There was no more hiding them between the natural cracks that are revealed during growth– they became prominent issues to solve for today. Thanks to the COVID-19 crisis, the ensuing market volatilities and the revamped nature of work, organizations began to wake up to the need to create internal systems to help them listen at scale, to create a working environment that promoted psychological safety and inclusion, to create a welcome atmosphere so they can ensure as many voices as possible are heard and engaged (instead of just those of the loudest or the most powerful few at the top), to source creative solutions to the new problems they face and enable good ideas with meaningful action. Some realized building these adaptive muscles would be their key to surviving through the pandemic.
In today's era, there really is no excuse for organizations and leaders not to leverage the available but untapped collective intelligence that resides within them. We have the technology to do this efficiently– research shows that crowdsourcing reveals a high enough quality of solutions to problems to be worthwhile, and modern culture is progressing enough for people to expect this level of transparency and inclusion in the decision-making process, especially when it comes to decisions that have a big impact on their lives. Leaders and organizations that fail to listen and update their processes to meet the world where it is (and where it's headed) will be left behind. No one wants a part of the outdated reality they have to offer. But before we could get to all of this, we at Swae hadn't factored in the effect the COVID-19 crisis would have on us as an organization– we nearly went under.
As it generally goes, building a tech startup, or any startup for that matter, is a roller coaster ride. And building a tech startup during a global pandemic brought challenges that I had never faced in my life. At the outset of the pandemic, Swae was thrown into a number of crises, and we had to overcome many headwinds to adapt ourselves to the new reality. The challenges that hit when 2020 came all centered around planning and maneuvering through massive uncertainty: uncertainty about what our clients were going through and if they had the available budgets to invest in our solution, uncertainty about where funding would come from and how to fundraise without in-person roadshows and meetings, uncertainty about the impact of the pandemic on recruiting global talent and team formation, and uncertainty about how to grow a team and instill the right culture while being entirely remote- the list goes on.
Since 2019, the landscape and market we've entered has changed in ways that I couldn't have predicted. The COVID-19 crisis came and hit everyone like a wrecking ball- the workplace became remote, and decision-making, team collaboration, and innovation (the things that Swae does) had become far more complex and fragmented than we ever imagined before. The toll the pandemic has had on people on all levels means what we do for employees (and leaders) is so much more profound. At Swae, this shift certainly forced us to re-evaluate and reinvent how we support organizations, and we're far stronger for it. Initially, we resisted the changes thrown at us, but we learned quickly not to fight them. We reminded ourselves that we aren't the only company that was massively affected during these highly unstable times, and it ended up being an opportunity for us to get really clear on what we're doing, and learn how to overcome big hurdles as a team. Embracing the uncertainty helped us find solutions, and come a long way. One by one, we faced each challenge thrown our way and found a solution to maneuver past it.
The top five challenges we faced (and how we overcame them)
From all the ups and downs we went through as a result of the COVID-19 crisis, to some early learning moments predating the pandemic, here are the top five challenges that we have endured since launching Swae, how we overcame them, and what we learned about about hiring, team formation, strategy, as well as ways to enhance our technology in the process.
1/ Losing an anchor client at the outset of the pandemic At the outset of the COVID-19 crisis, we lost our first and largest-paying customer, Etihad Airlines. When the wrecking ball of the coronavirus pandemic came crashing in, the impact on global airlines was swift, immediate, and painful. Etihad saw an 80% reduction in sales, and it cancelled all major enterprise contracts to reduce their bleed, including ours. Our entire pipeline of enterprise deals also disappeared into thin air. The crisis also indefinitely delayed the start of many projected client projects, and/or made the business case challenging to argue for.
To respond, we quickly turned on a dime to minimize our burn rate and preserve cash flow. To replenish our lost projected cash flows, we began applying for grants and thinking of new markets for our product. We eventually leveraged government support and grants to help us recover 40% of the lost revenue to manage through this period of uncertainty. Also, knowing we weren't the only ones facing difficult times, we understood that many organizations and local governments were struggling to adapt to virtual, all-digital, decision-making during this prolonged period of uncertainty. We came together and began brainstorming more immediate and shorter use cases of the product.
From listening to clients, we learned that people could use Swae to manage remote annual general meetings, and even use it to crowdsource content and agendas for virtual meetings and events. We felt there was a way to adapt our core product (to be more nimble to launch and easier to configure) to help others, while allowing us to earn short-term revenue. Two months after losing Etihad, in May 2020, we launched three complementary products to enable teams to make collective decisions over the internet quickly, conveniently, and safely. These included Swae for digital annual general meetings, Swae for digital policy making and governance, and Swae for remote team decision-making.
A snapshot of the Swae team gatherings on Zoom. Image courtesy Swae
2/ Losing anchor funders at the beginning of the pandemic In January 2020, we launched a CAD500,000 seed round, and quickly closed the first CAD150,000 for it. As mentioned earlier, in February 2020, we also closed our first six-figure annual commercial contract with Etihad Airways, after a year-long pilot of our platform inside the organization. The year was thus off to a great start- or so we thought. With enough investment closed and expected revenues from our first annual recurring revenue (ARR) contract (as well as a pipeline of CAD500,000- 1,000,000 worth of enterprise deals), we decided to pause our fundraise and instead focus on going to market with our product. After all, anyone who has built an early-stage startup knows that fundraising is a very intense and distracting process, and we thought the time would be better spent closing new deals.
But, hindsight is 20/20- no pun intended. The lesson we learnt was that when you have momentum, never stop! That was our biggest mistake. After we paused our round, in March, everything changed. Etihad cancelled its contract, and our entire pipeline of enterprise deals also disappeared after. Now, with no anchor deal and no pipeline of deals, how easy do you think it was to raise funds? When we tried to revive the fundraise, two committed anchor investors immediately retracted their commitments to invest due to the impact of the COVID-19 crisis on their portfolios, general cash availability, and the grim future that presented itself. Their canceled commitments combined with the comical series of other debacles significantly changed our cash flow projections and reality.
One day, we were projecting more money than we needed; the other day, we could barely fund ourselves. It was a vicious circle that would not cease. Without any new confirmed investment or revenues, we were projecting an end date of Swae for December 31, 2020. But given that we had this clear end date in site, we also knew we had to prolong our burn rate for as long as possible. So, we came together as a team and decided to restructure, opting to reduce our salaries as a last-ditch attempt to save the company. Each of us came to the table with an open mind, and depending on our individual situations, we offered to give up some portion of the salary that we had derived from Swae. While the minimum amount reduced was 30%, most offered to give up 100% of their salaries. And instead of a salary, the team would earn what they had sacrificed in equity with a sizeable risk premium and a bonus as well- that seemed fair.
I took the first heavy paycut, and then, all other part-time contractors voluntarily contributed their entire salaries to Swae in exchange for equity. Additionally, the leadership at our outsourced tech team bravely offered to contribute some engineers to our cause without pay for a long enough period to help us with ongoing client implementations and progress against our roadmap. This experience was a transformational and cathartic moment for us as a team. During a global pandemic, amidst all the uncertainties surrounding our individual lives, the team came together and collectively decided to do whatever we all could to keep the mission and dream of Swae alive. That experience brought everyone together in ways that superficial team-building exercises simply don't. When faced with a crisis, the team stepped up. Until this day, that moment acts as an an enormous source of mutual trust and kinship-like a binding agent between all of us. It's cemented part of our culture in that we simply don't give up when we face adversity, and instead, we accept reality we come together to look for solutions.
That crisis gave us a resounding amount of confidence to face the future, irrespective of what it presented. The internal restructuring allowed us to extend our runway by an additional nine months, allowing us to get to the other end of 2020 and successfully enter 2021. During these turbulent months, a silver lining emerged. Investors stopped seeing the COVID-19 crisis as a massive interruption, and began seeing the long-term implications of it on the future of work and society. Almost instantly, many began to see Swae as a potential source of solutions for the new complexities of working remotely during a pandemic.
The explosion and irreversible long term impacts of remote working, the accelerated adoption of digital tools, and new challenges associated with collaboration, maintaining engagement, and decision-making increased the projected market size and opportunity for remote collaboration tools from US$18 billion to $60 billion (almost a 4x increase) from 2021-2024. This new framing of the needs of the future workplace began changing Swae's market perception, and only increased interest in Swae. After a few short months, we were able to land our lead investor, William Eisenman, former CTO and Head of Engineering of Netflix, and were able to finish raising our seed round, which ended up also becoming oversubscribed.
A snapshot of the Swae team gatherings on Zoom. Image courtesy Swae
3/ No Chief Technology Officer (CTO)? No Problem! We went through two (yes, two!) CTOs but we still built the platform without that leadership position filled. Here's the backstory: when Swae initially launched, I bootstrapped the company from my savings, and we didn't have a CTO. We used the limited resources we had and our intimate knowledge of the problem to outsource the build out of a prototype- the team that did it is the team we still work with to this day. At that time, our needs were basic.
But after winning the New Shape Prize and getting a CAD750,000 non-dilutive injection of cash and some validation, we were ready to expand the team. We began recruiting for a CTO, searching for a strong technical lead, full stack developer, and artificial intelligence (AI) programmer to assume the responsibility of shaping our product, prototyping new features, and leading our AI development. We received over 400 applicants, and we then successfully hired a former Amazon employee, who was on Alexa's natural language generation team (they are the ones who enabled Alexa to have a nine-minute-long natural conversation with anyone about any topic) as our new CTO. He was a full stack developer, architect, and a natural language processing and generation specialist- a real unicorn!
Or so we thought- after working with this individual for a short seven-week period, things did not work out as we had imagined. He was brilliant, but the interpersonal fit was quite off. Our working styles and expectations about how to manage Swae became more incompatible over his short tenure. Fast forward six months after his departure, we were able to find a more suitable CTO with the right balance of interpersonal, leadership, and technical skills to be a better fit for what we needed for the phase of development of the company. She helped improve the product, and she also launched the newest version of Swae. Though she was with Swae for nearly two years, in May 2021, she also parted ways owing largely to important differences in perspective and expectation about the responsibilities and tradeoffs of being a co-founder, the overall product experience, and the company's direction.
Now, when we were recruiting for either CTO, my team and advisory board identified some potential red flags with each candidate throughout the process, and even discussed scenarios that could arise in the working relationship with either person that may be difficult to manage, but I ultimately decided that we needed to be practical, and that we as a team would try to deal with these concerns if and when they came up. Being a first-time tech founder (though a serial entrepreneur), I had convinced myself that we really needed a senior CTO with the skillset they had to accomplish the technological goals we had in mind with the product, and without their skillset we were screwed. But the truth is that I short-changed our long-term needs for the short-term pressures.
In fact, I disproportionately prioritized the skills I'd need from a CTO over the right mindset and expectations about what it means to build a startup, and I've since learned to never do this again. This was a costly mistake and a valuable lesson– especially when my gut was telling me to not to go ahead. Though exhausting and expensive, we learned very valuable lessons in both cases about how to pick the people we want to work with. Moving forward, we only make hiring decisions if the gut feels right, and we won't compromise that intuitive feeling in order to be "sensible." We balance skills with mindset and fit, and we'll never make the same compromises we did previously, simply because they have been proved to be unsustainable.
Initially, we panicked about the fact that we couldn't build a tech platform without a strong technical lead. But the experience of going through two CTOs and having to launch a product without them proved that I was wrong. We realized instead that we could distribute the tasks of the CTO into the existing roles we had amongst our team. The distribution of responsibility, combined with strong sprint defining, bi-weekly demo, and quality assurance processes meant that we were able to develop new features, and iterate the product consistently and affordably, without needing to rely on a figurehead.
With hindsight, we also realized that we were too early to need the skillset and seniority of a CTO, and instead, we could make similar progress with a strong senior developer instead. Indeed, adding the layer of a CTO would only be relevant after a few more years of traction and greater complexity of the product. And even though the company was without a CTO, the engineering process and team did not fall by the wayside. The team in Vancouver and India stepped up to ensure things remain on track, features were released under the expected conditions, and the platform relaunch timelines are met. To make up for the gap, we have since instituted new processes and meetings that include more critical roles, like weekly demos by the engineering team, priority-setting meetings that include design, product, and engineering together, etc.
Not having a CTO has also allowed us to save a significant amount in monthly recurring salaries and expenses to help prolong our burn rate. As of now, we still don't have a CTO. We have decided that our "departments" will remain headless, as we realized that we didn't need a multi-layered C-level or VP-level role in every department of our startup. When everybody has a voice and everyone is equally accountable, this becomes the bottom-up way (or, as we like to call it, the Swae way) to drive all the important aspects from marketing, sales, product development, and customer success and improvement. Ultimately, what we decided is that everyone has autonomy, but everyone owns unique directives.
Often, things come back to me, because the ultimate vision of any organization has to be driven by its core person(s), and I've been researching the concepts and methodologies underlying Swae and its potential to impact the world for a much longer time than anyone else on the team. This has worked really well thus far, and it also makes us much more responsive, so we are practicing what we preach.
4/ Lacking essentials for strategy and go-to market As is typical in a startup's initial launch phase, there's often a lack of clarity in some key areas around marketing and sales. At Swae, we had a bit of a rough start when we realized that we didn't have some key strategic details fully fleshed out. Since Swae had so many use cases and was an organization- and use case-agnostic tool, we didn't have a rigid and well-defined understanding of our ideal customer archetype. This led us down the path of being everything to everyone initially, which is a perfect recipe for dilution and failure.
Realizing this was a flawed approach, we invested time in gathering information and conducting research to create archetypes (or personas) of who we serve– this was critical to some early successes. Once the archetypes were in place, we began learning what objections people had to saying yes or no, and then redesigning our pitches to address those upfront, before we face long sales cycles that go nowhere real fast. Not having that sound structure led us to realize it was necessary to deeply understand the people that we need to connect with, and learn how to work through the objections. We're making these powerful changes for our sales and marketing output to help us make a larger impact overall.
A snapshot of the Swae team gatherings on Zoom. Image courtesy Swae
5/ Fundraising and hiring remotely Fundraising without face-to-face meetings was much more challenging than anticipated, as was building a team and instilling culture totally remotely. When face-to-face interactions became undoable, we had to innovate on the format of the meetings to make them personable, while creating important systems and structures to support culture building. As most know, video conferencing is laborious and can be very impersonal.
To make genuine connections on video, we decided to try to be more vulnerable and open with our prospective investors, clients, as well as our teams about the experiences we were facing trying to juggle this new life at home. In many cases, instead of trying to portray the utmost professional insincerity about the challenges of integrating work and life in one place, we would instead celebrate and even pre-empt the possible interruptions our calls would face when my two girls or our investors' children would "child bomb" our zoom calls.
This acted as natural ice breakers that built trust. Our calls would always start with a check-in to see how the other person was managing. We would solicit "the funniest Zoom experience this week" stories from anyone who would like to share. With prospective clients and investors, we would dress more casually for the calls, and keep our videos on so people could see our faces. We would also try to remove filters so people could see our living circumstances. In my case, I had a backdrop of decorative masks that greeted most people in my Zoom calls. This would naturally lead to a conversation about the origins of the masks, as well as about the good old times when we could travel freely to visit remote parts of the world.
To facilitate team building, we even experimented with casual get-togethers over Zoom on Thursday or Friday nights, where we would talk about anything but work. We would get to see other rooms in people's houses, hear about their favorite drinks, meet their partners who would join our calls, and generally build greater empathy for each colleague and their circumstances. All in all, we did our best to thrive during the moment, and some of these initiatives paid off. We built a great, trusting, team culture and sense of camaraderie. The solid team we invested in is still in place as of 2022, even though we had retracted twice since 2019, given the market challenges and global uncertainties.
Best of all, even with these challenges, we were able to fundraise a CAD750,000 seed funding round from some notable investors, and we've thus got the financial runway to build the version of the product of our platform, and really move forward in a more progressive manner. At the core, Swae's mission has stayed the same– to give everyone an equal voice in raising solutions and shaping decisions, allowing organizations (even government systems) to uncover and benefit from the untapped collective intelligence from within, through a robust and innovative platform of idea meritocracy and bottom-up decision-making. Indeed, the sheer pace of adaptation to change that's required of organizations today thanks to the COVID-19 crisis has set the scene for Swae.
Over the past 12 months, the results from implementing Swae for various clients speak for themselves, and this has made us more proud than anything else amid such harsh times. While Swae is proud of these achievements and remains laser-focused on helping traditional organizations shed more light on their challenges, providing a reliable platform where they can source ideas from the people within to create more inclusive cultures as well as a more equitable playing ground, we do have a more grandiose vision about implementing Swae in more consequential environments. We are committed to bringing innovation to our democratic systems, to decentralize and further democratize democracy. We want to inspire ideas and stimulate debate around new, more effective forms of global governance at the highest levels in the most important governing bodies of our times, whether it be in major cities, states, or countries. Swae is ultimately attempting to prove that a bottom-up system of decision sourcing can be as equally good or more effective than the top-down processes we have in place today in most organizations.
At a minimum, the immersive and bottom-up process Swae is promoting can live side-by-side with top-down processes, to complement what is in place, to ensure those that are marginalized have a chance of participating, and their unrevealed ideas are heard and actionized to ultimately benefit the organizations that employ or are responsible for them. We envision a world in the not-too-distant future where decision-making and policy-making processes are much more accessible within our cities, thanks to a combination of new institutions, education, cultural norms, and powerful technology, allowing citizens to have a more direct say in the decisions that impact their lives.
One day, we also see Swae displacing the need for elected representatives to intermediate on their behalf. We believe Swae can transform the relationship between elected representatives and citizens, fundamentally changing how citizens have a meaningful voice in policy design and prioritization, and, ultimately, how they shape decisions within the democratic system. Where we see the greatest opportunity for these ambitions and vision to realized is within the world of Web3 with the explosive growth and mainstreaming of decentralized autonomous organizations (DAOs).
At its essence, Swae is an end-to-end proposal development and collective decision-making system that helps groups of people in traditional organizations make sense of their members desired wants, needs, and reveal hidden opportunities for consideration into organizational decisions. Given the rise of Web3 and the growth of DAOs, Swae's platform and proposal development system can significantly improve the inefficiencies and poor user experience associated with raising, deliberating, and voting on proposals using traditional tools like Discord, Telegram, Forums, and the like.
Whatever direction the world goes in and we head towards, we must all accept that our current systems for decision-making are becoming less and less fitted for our new age, and that we need new actors, new operating assumptions, and new norms of cooperation to help reframe our priorities and uphold the needs of humanity first. We need new processes and improved participation methods in order to create new solutions that prioritize and give political weight to ideas that advance humanity, preserve and benefit all of our species, above a narrow set of national self-interests.
And all of this can happen using the foundation we've built for Swae, and it will be our next big evolution of the technology we've built. I'm sure it sounds a bit nebulous- but watch this space!