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We’re living through a period of economic, business and personal uncertainty due to the COVID-19 pandemic. It has caused economic downturns and losses on a monumental scale around the world. The ambiguity around the depth and length of the economic slowdown has made it even more difficult for businesses to adapt.
In such times of volatility, it is critical that business leaders remain calm and look forward to the future, rather than making rash decisions in the moment. However, it is also important to act swiftly and adjust strategies in the near-term that will allow businesses to preserve necessary resources.
Small businesses will need to persevere through a temporary depression in most markets. This varies by geography and sector. This is the time to do everything possible to retain cash flow and maintain business operations, employees, product development and plans for future growth. Building a successful company and investing are long-term endeavors.
Here is my advice for venture capitalists and small businesses navigating through this period of unprecedented economic uncertainty.
VCs: Take a deep breath and act honorably
My advice for venture capital investors is to take a deep breath and sustain a long-term view. Remember, for early-stage VC in particular, we’re investing in the steady growth and potential of a company over time–10 years or so. While valuations will likely decline and there will certainly be a need for additional capital and support, the economy will rebound eventually.
Additionally, don’t be afraid to seek out new opportunities during this time. Again, while it’s likely that startups will need extra support, it’s also well known that some of the best venture-backed businesses were founded and funded in recessionary times. Examples include Facebook, Microsoft, Nutanix and Electronic Arts.
Remember that entrepreneurs, fellow investors and vendors will have long-term memories. Don’t overplay your hand. While you may see the opportunity to extract unheard-of terms, think twice and think as if the tables were turned. It’s in your best interest to partner where the relationship is fair and balanced.
Startups: Focus on R&D, people
For entrepreneurs with enough resources to survive 3-12 months of minimal new sales, this should be seen as a time to shift focus to develop a better product, improve automation of internal processes, and keep existing customers well served. This will not only strengthen the business overall, but will also place it in a better position to respond to pent-up demand and resumed competition once economic growth returns.
With that said, it’s undoubtedly a very confusing time for employees and managers alike.
Here are some steps to help ensure the well-being of staff and the company as a whole:
Reach out to employees, colleagues and investors on a personal level. In these unusual circumstances, people work best with structured processes, familiar routines, and when they truly feel connected, listened to, seen and supported.
In doing so, actively engage and utilize “social enterprise” tools for a work-from-home environment that may endure for months.
Think long term.
Try to act rationally, not emotionally. Base your actions on a clear set of assumptions, including contingency planning, that everyone understands. Keep your eyes on the long-term vision for growth and scale, but take appropriate stabilization and defensive measures in the short term. In addition, remember there are also opportunities to hire better people, do more training and make acquisitions, as well as other “lean forward” tactics. Consider adjusting key performance indicators and evaluations with flexibility, while maintaining rigorous measurement and efficiency moving forward.
Budget and use financial resources strategically.
Review your budget and focus on cash flow with scenario planning alternatives. Then, reallocate budget to top priorities and defer or close lower priority projects and initiatives.
Next, look for creative ways to cut costs by temporarily lowering salaries (starting with your own), deferring salaries or in some cases trading salary for equity options. For this, always check with legal and human resources teams.
Lastly, assess the credit situation with lenders and draw down available credit before it’s needed. And, when appropriate, take advantage of cash coming from federal and state programs such as the CARES Act loans from the Small Business Administration.
While it’s never easy to pivot quickly due to unforeseen circumstances, now is the time for small-business CEOs to prove themselves as visionary, prudent and trusted leaders to come out of this even stronger.
The path forward
Maneuvering through this historic and challenging time requires adopting the right mindset. While it’s difficult to carry on business as usual, it’s important to keep in mind that there is a light at the end of the tunnel and actions taken now will impact future success.
Over the long term, the behaviors exhibited, resources deployed, lessons learned and new protocols implemented can enable a significant step-change improvement and lead to a better future for entrepreneurs, employees, investors and their customers.
Illustration: Dom Guzman