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Our company is in a counter cyclical industry, one of the ones referenced in the article. We were looking to raise money this quarter, regardless of this pandem
by gen220 7y ago
Our company is in a counter cyclical industry, one of the ones referenced in the article. We were looking to raise money this quarter, regardless of this pandemic, because we had maybe a year and a half of safe runway left.
The interesting thing is that this downturn has simultaneously raised our revenue (since we’re counter cyclical), but dramatically decreased the likelihood of us getting another round with reasonable terms this quarter/year, because cash is no longer cheap for our would-be investors.
As such, even though our quarterly financials are going to be abnormally high, they decided to cut some perks and let go of 5% of employees (among other things) to reduce our burn rate.
It’s an interesting outcome: it doesn’t matter how counter cyclical your business is, if you have a runway and it’s less than two years, you’re impacted.
In the aftermath of all this, I wonder if more entrepreneurs of wannabe hyper growth companies will seek out positive cash flow more sincerely than they do today, after going through this trauma.
- hartator 7y ago> It’s an interesting outcome: it doesn’t matter how counter cyclical your business is, if you have a runway and it’s less than two years, you’re impacted. Not if you're profitable.
- fennecfoxen 7y agoBeing profitable rather implies more than two years' runway.
- deleted 7y ago[deleted]
- lmeyerov 7y agoYou're profitable until you're not. B2b world took a breath and continued in many places, but if the bottom keeps falling out, very unclear what next quarter looks like, and the quarter after. If the other end of the b2b is a b2c and the b2c goes away, so does the b2b. We're seeing new (small) purchases continue at big enterprises, and 2020 budgets were already ok'd in dec/jan/feb. We also help gov teams, and even slower response there (and I feel for the employees there where remote work is even less of a thing, esp. in national defense). Institutional momentum & insulation means a very delayed response. No clue when it'll be and what it'll be. Hence, even if you're doing fine, but don't have runway for > 1yr, who knows. Run-rate is very different from a cash reserve when the rug gets pulled out under you for whatever reason.
- thinkingkong 7y agoNot sure where you work but youre lucky to be at a company that has a team thats taking that kind of action. Massive props.
- gen220 7y agoYeah. Nobody likes to see people go, but it's better to cut 5% employees today, in reaction to the uncertainty, than to cut 20% in 6 months if the worst case scenarios play out. It's a hard decision, but a mature one that minimizes the expected value of suffering, so I respect it too. Tough times :P
- ilammy 7y agoBut if the worse scenario actually plays out, you go on to cut 5% every other month, and end up with a net 15% cut in half a year regardless. But now your people are uncertain whether they should expect another cut, given the track record.
- gen220 7y agoThere’s a number of reasons why I think that won’t happen here, but you’re right generally. My disposition leans cynical so it took me a week of badgering leadership to be confident this wasn’t the case. I don’t want to dive into the details of our particular case, but I agree with the thrust of what you’re saying: cuts almost never inspire confidence. If you’re in a leadership position and you’re making a preventative cut and you’re super confident that you won’t need to make more going forward, you need to overcommunicate this, otherwise the anxiety you induce will reduce productivity and undo the cut.
- jandrewrogers 7y agoI also work at a theoretically counter-cyclical company, which is a brilliant selling point these days, and business has been very good. Our experience has been a little different than yours. While investors are suddenly poor and conserving capital, the fact that we are closing big deals right now when every other startup they see is clinging to life and big deals are evaporating makes the company relatively attractive in the current environment. That is almost literally our pitch —- how many deals do you see that are doing this kind of business in our current environment? We have been cautious but we are actively growing our headcount. The quality of candidates we see has also spiked. It is a very rough time for many of my friends but this is a market where strong counter-cyclicals can do extraordinarily well.
- gen220 7y agoI think counter-cyclical SaaS business are well-poised for some favorable term sheets this quarter, which sounds like your setup: enjoy it! :) Our product is consumer facing (so it lags the cycles a bit, we can't triple our sales team this quarter and immediately double our revenue), and in an industry with regulation-capped margins (effectively capping ROI, without market expansions). Maximum profit percentage is in the single-digits, but revenue is measured in billions, so it's a small slice of a big pie. All this to say, we're a fairly conservative investment, so VCs don't look to us to save their currently-imploding portfolios, like they might look to you. Again, enjoy it! :)
- jandrewrogers 7y agoWe are enterprise, that is probably a key difference! I can easily see consumer being more tenuous in the eyes of investors because there are going to be far more questions about what consumers are willing to spend in current conditions. All of our customers have plenty of cash in theory, we just have to encourage them spend it with us. :)
- fblp 7y agoThanks for sharing. What are examples of counter-cyclical companies?
- gen220 7y agoInsurance carriers are the poster child for counter-cyclical business (https://en.wikipedia.org/wiki/Insurance_cycle https://en.wikipedia.org/wiki/Insurance_cycle). (Tangentially, article is interestingly pretty opinionated for wikipedia! Strange.) Staple goods and foods are also generally counter-cyclical, because in times of prosperity, people tend to eat out and travel more. There aren't many examples of VC-backed companies in this category, because it's very very hard for upstarts to break into counter-cyclical industries.
- jandrewrogers 7y agoGovernment is a common counter-cyclical.
- nostrademons 7y agoGaming and other cheap (fixed-price) entertainment is often counter-cyclical. When people get laid off they have more time to fill; similarly, when the general mood is depressed, people look for things that will distract them from their miserable predicament. There're some other niche examples, eg. liquidation specialists and bankruptcy lawyers. These are pretty obvious ones: anything that people do when they lack money tends to get a boost in a recession.
- Justsignedup 7y agoPersonal prediction. Look at 2008. Right now "the blood is on the streets". The perfect time to use your capital to grab up whatever you can. In a couple of years we gonna have a total economic collapse or a major bounce back. So get started with shit now. It is the perfect time. Buying yourself time until the bounceback is the right move.
- strken 7y agoI agree with this as good general advice about economic slumps, but I don't think the v shaped recovery earlier this year accurately reflects the real impact that so many people becoming unemployed will have. Is the right time now, or is it a few months down the track once everything has set in?
- tonyedgecombe 7y agoIt's not obvious to me that we have reached the bottom yet.
- easytiger 7y agoOne thing 2008 taught me was that people learned to constantly predict that doom is imminent, for fear they get caught not being retrospectively right.
- varjag 7y agoThat's no specific to 2008. It's an attitude that every new generation re-learns in their own formational crisis.
- boredgamer2 7y ago> counter cyclical industry What are some examples of "counter cyclical industry"? I have not heard this term before..