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Ben Horowitz, co-founder of Silicon Valley Venture Capital firm a16z, once made a distinction between the circumstances that require a leadership approach in times of peace and war. In peacetime, CEOs can focus on expanding the market and strengthening the company's strengths. They ward off an existential threat during the war.
For most of the past decade, we have had a peacetime characterized by economic growth and prosperity. But the outbreak of the COVID-19 pandemic quickly put business-as-usual into war mode.
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I recently sat down with a Silicon Valley leader who became known as a "turnaround type" for portfolio companies during his tenure at Battery Ventures during the Dotcom bankruptcy and at Shasta Ventures during the Great Recession. Evan Liang, CEO of LeanData, is now applying these best practices and lessons learned to his own startup.
Liang shared his view of strategies that startup CEOs can use to stay agile and responsive in our rapidly changing landscape. These are his five recommendations to guide you through the current recession.
1. Trust your employees (and your board) bad news
It may not feel intuitive, but there is never a greater need for transparency than when war clouds gather. This is exactly the case when managers are open to employees, consultants and the board and should make them real partners. In a recession, these people are actively looking for the bad news and have to trust you with it. Don't sugar. Let them know the battle plan and how their roles contribute to the victory of the war.
Liang says this impressed him during the Dotcom bankruptcy when he was on the board of a software startup. “The management team had bad news when the company changed runways from six to a month. When the facts became known, the management was dismissed and the management board took over the company. We focused on gathering the troops and restoring the trust of the employees. And with their help, the company landed gently. "
2. Save money, be creative with stocks
Cash is king during a downturn, especially when the future is uncertain. There are several levers you can pull to save money, and among them the compensation should be high.
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Liang says, “You have to proactively save jobs during a recession, and using stocks instead of cash can help you do that. However, it is important that you understand the different motivations of people – for some, cash is crucial, while others prefer to be rewarded with stocks. If you can segment your employees according to each person's needs and desires – cash or equity – you can create a win-win for everyone while improving your cash position, fostering long-term loyalty and securing the jobs of the people who You need to help you through the recession. "
But employees are not your only constituency that deals with remuneration. During the war, a large number of providers were often open to accepting shares instead of cash – for example, landlords, consultants, parts suppliers, insurance companies, mortgage holders and various service providers.
"In 2001, startups I worked with weren't particularly difficult to offer landlords options – they wanted the stock," said Liang. "In the current recession, taking stock as a means of payment may not be a question of" lack. "Many landlords and others who have to be paid have already leaned against the wall in today's economy. Offer them equity sweetened with something Cash, and they can take the risk openly. "
3. Make small cuts early to avoid larger cuts later
While small budget items may seem insignificant in themselves, they add up considerably – think of unused software licenses, T&E, monthly retention periods, foreign office space, dormant equipment, and free lunches. You can start cutting in two ways: now or later. Liang has learned that for maximum impact, you need to make as many small cuts as possible – earlier than expected – to start immediately creating a runway for the company.
"Let time be your ally. You can't be like a deer in the spotlight and wait until the situation is bad, ”says Liang. “A monthly cost reduction of $ 10,000 saves a job early. You need to get your people involved in these efforts – and motivate them to act quickly to chop the fat. "
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Some CEOs are afraid of the perception that this could create for employees about the state of the company. However, Liang has found that if you are transparent to them, your employees will appreciate the small cuts and their ultimate goal of saving jobs.
Cost reduction measures should also not be limited. Liang has learned that it is important that your target earnings and cash plans assume a worst-case scenario. "When I present a series of cuts to my people, I tell my people that I want to see the proposed next series," he says. "This way, we can act quickly against surprises and prevent us from becoming a victim of war again."
4. Be creative in finding new funding
While traditional VCs determine the early stage finance center for businesses, there are non-traditional ways that are faster and potentially more beneficial in difficult times.
For example, in the course of the dotcom bubble, Liang negotiated with the clients of his portfolio companies about the exchange of intellectual property for financing. “If you have strategic customers who consider you to be business-critical, they are often happy to secure access to your IP while being prepaid by a multi-year contract. In other words, you get security, you get cash, ”he notes.
But it doesn't have to stop at customers. Liang has successfully entered into treasure deals with partners, suppliers, law firms, landlords and employees who have a vested interest in ensuring your survival.
5. Don't stop hiring! Recessions are a good time to find top talent
It's no secret that there are many talents in recessions. But in 2001 and 2008, many companies lost momentum because they had stopped hiring. In essence, they have lost their attitude groove. And once it is lost, it is difficult to get this movement going again.
Liang says, "I saw entire HR departments fired during a downturn. Though often, it's a bad knee-jerk reaction. Keep using your recruiting muscle during the war, or you'll fall behind on key assignments. Invest You in key roles before it becomes difficult to fill them. ”Once you have the runway, you should invest in people to get even stronger on the other side.
Use this opportunity to thrive and not just to survive
Declines can be liberating, according to Liang. “You can act quickly and see results immediately. It is high stress, but also high impact. You work with a strong imperative in these times. Because the alternative is, your company can die. "
"If it's avoidable, don't just help your company with a band-aid," he says. “Focus on making assets more productive and successful. Invest in your sales people and the rest of the sales chain. And always make sure to come out stronger on the other side. "