March 18, 2020
By Daniel Veytsblit, Investment Director, Investible
In just a few weeks, the spread of COVID-19 has caused mass disruptions to ‘business as usual’, forcing many founders to review and adapt their strategies.
With the full effects of the coronavirus still yet to be fully realised, planning for the future might seem daunting. However, navigating this time of uncertainty is no different to facing any new challenge or opponent.
When faced with a significant challenge, it’s not enough to simply adjust your original plans. Founders must plan for multiple potential scenarios. In the context of COVID-19, the timeframe of the resulting downturn is unknown and could be anywhere from two to 12 months. It is important to plan for each scenario. Cash is king for early stage companies and the goal should be to preserve enough cash to then be able to grow into your next funding round (if you need one).
Assessing the potential impact on forecast revenue is a must. In many cases, new business growth will slow with few, if any, new customers. Forecasting scenarios around renewal rates is then key. With each scenario, there will be an associated level of appropriate expenses in order to achieve the cash objective.
Ambiguity tends to creep in, especially in a situation that is still unfolding on a daily or even hourly basis. That’s why it’s important to be explicit on what will ‘trigger’ you to move to an alternative plan. For instance, if monthly recurring revenue is in sharp decline, it might be tempting to hold out a few more weeks for the situation to change. Having a clear ‘trigger’ to change course will promote greater clarity and cohesion within your business and give investors greater confidence that you are responding objectively and proactively.
While many startups have quickly actioned important, short-term health and safety measures to protect their employees and customers (their most important assets), it is also important that founders move to safeguard the financial health of their business.
For startups, cash is the make or break factor, so you need to watch it like a hawk. There are a number of ways to improve your cash position in the short term, such as auditing your costs, reducing unnecessary spending, asking suppliers for longer payment terms or temporarily freezing training and development measures. However, reactive, knee-jerk cuts are not your ticket to success in the long term.
Use this time as an opportunity to rationalise your cost base. For founders looking to raise additional capital, it won’t be enough to simply crawl over the finish line in a few months. You will need to have enough runway to grow into your next funding round. That means leaving enough in the tank to shift back into high gear when the timing is right. Founders who are unable to show they are continuing to grow or gain traction post-COVID-19 will find it difficult to raise capital at their valuation expectations. Investors will need to see you can thrive, not just survive.
The world’s best early-stage founders and investors have a unique ability to see opportunity in the most unlikely places. Necessity breeds innovation and times of crisis can give rise to new ideas and opportunities for those who are ready to embrace them.
Try to maintain a calm, positive mindset, with the goal of emerging even stronger.
This is your chance to develop a more capable product, streamline your processes, improve team collaboration, or tighten up your costs. Who knows? You might even discover a new revenue stream that you would not have pursued in a ‘business as usual’ scenario.
The road ahead is never certain but founders who are willing to plan, decide, and innovate can build their own path to success.