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Founder's Field Guide for Navigating This Crisis

236 points by bb92849281 7y ago

transitivebs 7y ago
This is an excellent resource for early stage founders like myself at this time. My personal key takeaways: - Locomotive effect may propagate later stage disruptions onto early stage businesses. Macro shifts will affect micro-level economics sooner or later. - Doing nothing is a decision and in this climate it's often better to react and plan aggressively starting now. - Runway matrix & scenario planning are great as a reference. Make these assumptions and gameplan a living doc so you revisit them from time to time. - "$1 today is much more valuable than $1 in two years" especially in a recession - "Especially in a downturn, people want to give money to companies that don’t need the money.” - Many of your potential customers will be laying off engineers, so focusing on a "buy instead of build" message can really help your sales pitch. - Expect fundraising rounds to take much longer (6 months plus) for the foreseeable future - Don't forget the personal side of things and how everyone's family may be affected in unexpected ways - To shine a light on potential and reframe your mindset, ask yourself: What are the unexpected opportunities that have come out of this chaos already?
Swizec 7y ago
Got positive unit economics? Great! You get to live. Work on that cost of acquisition and overhead. Got negative unit economics? Hope you don’t need that next round any time soon. Good luck Profitable business? Consider hiring folks laid off from the first two options
- closeparen 7y ago
  >Got negative unit economics? Hope you don’t need that next round any time soon. Good luck But a slowdown in business activity will actually prolong your life...
  - zuhayeer 7y ago
    The worst way to die is slow and with false hope
Animats 7y ago
Is it better to just shut down now? For his example business, a corporate catering business, the answer is probably yes. That industry is going nowhere for at least a year and may never come back. After the epidemic is over, many people will still be working from home. (Commercial real estate is going to be hammered. Watch them scream for bailouts.) "The number one existential threat right now is running out of capital." No, the number one existential threat is running out of market. If you're a cruise line or a convention service, there's no market. Doesn't matter how much capital you have, it won't help. On the other hand, if you're selling work-from-home tools or face masks, you have plenty of orders and can get capital.
- nickff 7y ago
  You seem very certain about your predictions; do you believe you have some non-obvious insight? REITs, which own and rent out a great deal of commercial, industrial, and residential real estate have already dropped in value, losing 50% of their market capitalization in many cases. Most vacation and luxury related companies have also dropped precipitously in value. It seems you think the market is underestimating the damage; how much money have you bet on further drops?
  - inopinatus 7y ago
    Startups are built on feedback. Those first customers aren’t just cashflow and validation, they are a vital source of guidance for product/service direction. My customers are sport associations and federations, and they are 99% in hibernation right now. It’s not runway I’m short of, it’s feature requests. Marketing is a bidirectional exchange.
  - vkou 7y ago
    > It seems you think the market is underestimating the damage; how much money have you bet on further drops? Given that the fed is printing money hand-over-fist, and throwing it at the market, it's quite possible for the market to become completely disjointed from the main street economy. If it weren't for the printing presses working overtime, there wouldn't be any talk of any v-shaped recovery. Instead, we'd all be panicking over the unemployment numbers.
redis_mlc 7y ago
Most exits take about 7 years. I've lived through many crises, and sooner than you think, they're in your rear view mirror. Just keep plodding along and don't run out of cash. If you think SARS-2 is anything special, it's really not (unless you're an airline.) It really is just the flu.
- heavenlyblue 7y ago
  You seem to be both knowledgeable in startups and SARS. Are you by any chance working for a respirator startup?
smallgovt 7y ago
The most useful takeaway for me was: “In 2008, the average Series A company raised $4M on a $28.5M post. In 2009, it was considerably less with an average of $3.5M on a $14M post — half the valuation of the year before. And there were 30% fewer Series A rounds overall." Battening down the hatches and cutting costs is common sense. But, actually quantifying how much harder your next raise will be is helpful. Congrats to anyone who wasn't depending on it!
colinrand 7y ago
One of the hardest parts of leading a startup (or any company really) in a major downturn is managing your employees expectations for their career growth. Many of them will have joined a rapidly growing company - ones with the most rapid career path opportunities - only to see the rug pulled out. Imagine joining a company as a software engineer with expectations of becoming a lead and then a manager? Imagine joining as a manager and expecting to grow your team from 5->50? Managing these expectations as an executive and coaching your team through the crisis is a vastly underappreciated skill. We focus too often on what your equity will be worth as a means of motivation. Convincing a talented engineer whose equity went from $1m->zero overnight that all it takes is 'grit' to make through to the other side, that's when experienced management pays off.
- JoeAltmaier 7y ago
  And its not all deception. For all those that are convinced to stay on a sinking ship, there are a few that flee only to discover they missed the big payout. I know one who was an early Tandem employee. He left because he had only a Masters' degree, among all those PhDs. They never respected him, never considered him for responsibility nor much equity. So he left to pursue another degree. Later of course had he stayed, he'd have been a millionaire many times over from even the little equity he'd had. Another was working on a 3270 emulator for the PC, only to have IBM announce their upcoming product just as his was about to release. So he left the floundering company to get an MBA. Later they pivoted to release the network part of their software as Banyan Vines, which was a worldwide best-seller. And so on.
  - icedchai 7y ago
    Not all deception, just mostly... For every one of these examples, there's tens, probably thousands, of people who stayed on at a "promising" startup. They drank the juice and swallowed the lies, only to find out their equity was worth nothing or close to it. The truth is they would've been better off at the megacorp, investing their spare change into the public markets.
  - veeralpatel979 7y ago
ineedasername 7y ago
>Cancel credit cards and issue new ones so you can zero out expenses quickly. This will end all recurring charges — and force the company to explicitly re-subscribe to all essential services. If this is required, you're absolutely mismanaging you spending already. It's a nuclear option. If your accounting is so sloppy that you cannot, in the course of a day, pull a list of recurring subscription-like expenses and instead have to take such drastic measures, then you really, really, really need to take that as a sign that your entire accounting needs are not being adequately addressed. Maybe you don't have the right people handling that end of your business. Or maybe you aren't listening to them on best practices because you want to move fast. But if you're burning runway through such awful spending habits, you are literally giving away equity in your business because you can't be bothered to be a good fiscal manager, not to mention a responsible shepherd of your investors' funds.
- lanstein 7y ago
  Sure, and you can look at a list of recurring meetings and people can cancel them. Or you cancel all of them and see which ones get recreated. One way is probably more effective.
  - wpietri 7y ago
    Effective at what? In the short term, nuking all of them will get you fewer meetings, both wasteful and valuable. But it doesn't teach people much, except maybe that their bosses act arbitrarily. The better solution is to coach people on more effectively using company time.
    - ALittleLight 7y ago
      The issue is what things default to. If you have to figure out if you need to subscribe to X or not, it's a meeting, get stakeholders, input, sign off etc all while you have other demands on your time. If you don't get through with it and figure it out, then that service goes to the default - i.e you keep subscribing. On the other hand, if you cancel everything, then the default will be off. Essential services will require you to go through the hoops again because they are essential.

236 points by bb92849281 7y ago

This is an excellent resource for early stage founders like myself at this time. My personal key takeaways: - Locomotive effect may propagate later stage disruptions onto early stage businesses. Macro shifts will affect micro-level economics sooner or later. - Doing nothing is a decision and in this climate it's often better to react and plan aggressively starting now. - Runway matrix & scenario planning are great as a reference. Make these assumptions and gameplan a living doc so you revisit them from time to time. - "$1 today is much more valuable than $1 in two years" especially in a recession - "Especially in a downturn, people want to give money to companies that don’t need the money.” - Many of your potential customers will be laying off engineers, so focusing on a "buy instead of build" message can really help your sales pitch. - Expect fundraising rounds to take much longer (6 months plus) for the foreseeable future - Don't forget the personal side of things and how everyone's family may be affected in unexpected ways - To shine a light on potential and reframe your mindset, ask yourself: What are the unexpected opportunities that have come out of this chaos already?

Swizec 7y ago

Got positive unit economics? Great! You get to live. Work on that cost of acquisition and overhead. Got negative unit economics? Hope you don’t need that next round any time soon. Good luck Profitable business? Consider hiring folks laid off from the first two options

closeparen 7y ago
>Got negative unit economics? Hope you don’t need that next round any time soon. Good luck But a slowdown in business activity will actually prolong your life...
- zuhayeer 7y ago
  The worst way to die is slow and with false hope

Animats 7y ago

Is it better to just shut down now? For his example business, a corporate catering business, the answer is probably yes. That industry is going nowhere for at least a year and may never come back. After the epidemic is over, many people will still be working from home. (Commercial real estate is going to be hammered. Watch them scream for bailouts.) "The number one existential threat right now is running out of capital." No, the number one existential threat is running out of market. If you're a cruise line or a convention service, there's no market. Doesn't matter how much capital you have, it won't help. On the other hand, if you're selling work-from-home tools or face masks, you have plenty of orders and can get capital.

nickff 7y ago
You seem very certain about your predictions; do you believe you have some non-obvious insight? REITs, which own and rent out a great deal of commercial, industrial, and residential real estate have already dropped in value, losing 50% of their market capitalization in many cases. Most vacation and luxury related companies have also dropped precipitously in value. It seems you think the market is underestimating the damage; how much money have you bet on further drops?
- inopinatus 7y ago
  Startups are built on feedback. Those first customers aren’t just cashflow and validation, they are a vital source of guidance for product/service direction. My customers are sport associations and federations, and they are 99% in hibernation right now. It’s not runway I’m short of, it’s feature requests. Marketing is a bidirectional exchange.
- vkou 7y ago
  > It seems you think the market is underestimating the damage; how much money have you bet on further drops? Given that the fed is printing money hand-over-fist, and throwing it at the market, it's quite possible for the market to become completely disjointed from the main street economy. If it weren't for the printing presses working overtime, there wouldn't be any talk of any v-shaped recovery. Instead, we'd all be panicking over the unemployment numbers.

redis_mlc 7y ago

Most exits take about 7 years. I've lived through many crises, and sooner than you think, they're in your rear view mirror. Just keep plodding along and don't run out of cash. If you think SARS-2 is anything special, it's really not (unless you're an airline.) It really is just the flu.

heavenlyblue 7y ago
You seem to be both knowledgeable in startups and SARS. Are you by any chance working for a respirator startup?

smallgovt 7y ago

The most useful takeaway for me was: “In 2008, the average Series A company raised $4M on a $28.5M post. In 2009, it was considerably less with an average of $3.5M on a $14M post — half the valuation of the year before. And there were 30% fewer Series A rounds overall." Battening down the hatches and cutting costs is common sense. But, actually quantifying how much harder your next raise will be is helpful. Congrats to anyone who wasn't depending on it!

colinrand 7y ago

One of the hardest parts of leading a startup (or any company really) in a major downturn is managing your employees expectations for their career growth. Many of them will have joined a rapidly growing company - ones with the most rapid career path opportunities - only to see the rug pulled out. Imagine joining a company as a software engineer with expectations of becoming a lead and then a manager? Imagine joining as a manager and expecting to grow your team from 5->50? Managing these expectations as an executive and coaching your team through the crisis is a vastly underappreciated skill. We focus too often on what your equity will be worth as a means of motivation. Convincing a talented engineer whose equity went from $1m->zero overnight that all it takes is 'grit' to make through to the other side, that's when experienced management pays off.

JoeAltmaier 7y ago
And its not all deception. For all those that are convinced to stay on a sinking ship, there are a few that flee only to discover they missed the big payout. I know one who was an early Tandem employee. He left because he had only a Masters' degree, among all those PhDs. They never respected him, never considered him for responsibility nor much equity. So he left to pursue another degree. Later of course had he stayed, he'd have been a millionaire many times over from even the little equity he'd had. Another was working on a 3270 emulator for the PC, only to have IBM announce their upcoming product just as his was about to release. So he left the floundering company to get an MBA. Later they pivoted to release the network part of their software as Banyan Vines, which was a worldwide best-seller. And so on.
- icedchai 7y ago
  Not all deception, just mostly... For every one of these examples, there's tens, probably thousands, of people who stayed on at a "promising" startup. They drank the juice and swallowed the lies, only to find out their equity was worth nothing or close to it. The truth is they would've been better off at the megacorp, investing their spare change into the public markets.
- veeralpatel979 7y ago

ineedasername 7y ago

>Cancel credit cards and issue new ones so you can zero out expenses quickly. This will end all recurring charges — and force the company to explicitly re-subscribe to all essential services. If this is required, you're absolutely mismanaging you spending already. It's a nuclear option. If your accounting is so sloppy that you cannot, in the course of a day, pull a list of recurring subscription-like expenses and instead have to take such drastic measures, then you really, really, really need to take that as a sign that your entire accounting needs are not being adequately addressed. Maybe you don't have the right people handling that end of your business. Or maybe you aren't listening to them on best practices because you want to move fast. But if you're burning runway through such awful spending habits, you are literally giving away equity in your business because you can't be bothered to be a good fiscal manager, not to mention a responsible shepherd of your investors' funds.

lanstein 7y ago
Sure, and you can look at a list of recurring meetings and people can cancel them. Or you cancel all of them and see which ones get recreated. One way is probably more effective.
- wpietri 7y ago
  Effective at what? In the short term, nuking all of them will get you fewer meetings, both wasteful and valuable. But it doesn't teach people much, except maybe that their bosses act arbitrarily. The better solution is to coach people on more effectively using company time.
  - ALittleLight 7y ago
    The issue is what things default to. If you have to figure out if you need to subscribe to X or not, it's a meeting, get stakeholders, input, sign off etc all while you have other demands on your time. If you don't get through with it and figure it out, then that service goes to the default - i.e you keep subscribing. On the other hand, if you cancel everything, then the default will be off. Essential services will require you to go through the hoops again because they are essential.