Early-stage startup planning in uncertain times
If you are looking for tools & resources for small teams becoming remote, read that blog post here.
This morning I wanted to update the Textile team on how the coronavirus is going to impact planning and development at Textile. In the face of all the change that is coming, it's more important than ever to protect a healthy runway, remain vigilant of market shifts, and be creative and adapt as the world changes around us.
Below are some notes I collected to prepare this internal meeting. I wanted to share these notes with other startups trying to figure this out. While the notes may come across a bit gloomy, our internal outlook is pretty optimistic. Armed with the right questions to ask right now, we can be sure we are safe and working on the right problems. I hope this information can help you and your company get to the same place. The next months will be tricky, but you can get through it! If you read these and want to ask any questions, feel free to grab some of my time.
It's bad out there. Next month will be worse.
You can be successful through these times, but you must adapt, and you must move quickly.
- It's bad both in terms of the spread/impact of the virus and in terms of the markets.
- It will take considerable time — perhaps several quarters — before you can be confident that the virus has been contained. It will take even longer for the global economy to recover its footing. (source)
- As Darwin surmised, those who survive "are not the strongest or the most intelligent, but the most adaptable to change." (source)
A healthy runway is a healthy company
Many different factors can impact the health of a startup, but a healthy runway is what keeps you alive and your employees secure.
- Even without a recession, startups fail when they run out of funding (source).
- Recessions typically last 11 months to 1.5 years (source).
- A healthy runway to survive this recession is 18+ months (source).
- Act as if the money you have is the last money you will ever get (source).
- However, you don't want to be limping on the other side, you want to be roaring!
Private markets are going to change quickly
The environment for raising new funding rounds is going to change for the worse, and probably get very bad very soon but then improve over time. You do not want to be forced to raise a financing round in these conditions.
- VC funding is going to change in ways that won't be as favorable as they have been in recent months. Some VCs will fail, most deals will be less favorable, and investment strategies will change (source).
- Many companies that are Default Dead and have less than 18+ months of runway will go out of business or raise down rounds (source).
- Time to double-down on your business model! In a volatile market, like the one we’re seeing today, startups need to break even — or at least have a realistic plan to get there — before continuing to grow. (source)
- Great products don’t wait for after a recession. Many of the most iconic companies were forged and shaped during difficult times. We partnered with Cisco shortly after Black Monday in 1987. Google and PayPal soldiered through the aftermath of the dot-com bust. More recently, Airbnb, Square, and Stripe were founded in the midst of the Global Financial Crisis. (source)
We don't know yet if we need to respond to market changes or societal changes
Your company needs to begin a long-term process of re-evaluating what you know and what it means for your business plans and product.
- If we start containing the virus in three months, you need to prepare for the recession. If it takes three years, you probably need to build a different company. (source)
- Right now, three months seems like the most likely scenario. In this case, plan carefully for a recession and ensure your company can emerge on the other end.
- If it takes us three years, then the world and society will be very different and have very different needs.
A different market in the short-term
We do know that companies are going to react in the short-term by reducing spend on new technology, spending less time on speculative development, and focusing on projects that add certainty to their own existence.
- Identify ways that your product can help other companies build a bigger lifeboat (e.g., save money). (source)
- Being agile is even more important during the recession since you will have a limited window to gain market entry. The standards will be higher, and the sales cycles will be longer. As such, you may need to go after the easier markets first, even if it is not your final goal. (source)
- Can you form partnerships with segments and verticals that aren't going to be as negatively impacted by this recession?
- Can you sell your product differently? (source)
- Stay focused on new market-dynamics that emerge. In the noise of the next three months, there will also be many opportunities to create new services for individuals or organizations in need. Look for new demand, systems shortcomings, or direct asks from customers.
- The surest route to success is to be the cockroaches of the corporate world (source)
Ensure security, strike at new opportunity
Be smart, not scared. Get all your ducks in a row now so that you have the certainty and confidence to grab new opportunities as they become clear.
- All of the above indicates that it might be time to take a defensive, conservative POV as a startup. This is wrong.
- To be successful, your employees must be safe/secure, and your company must be alive. But as those are true, a dynamic and uncertain market is going to reveal a number of new and interesting ways you can create value in the world. Be ready. (source)
- The companies that will be successful over the next couple of years are the ones who grow and invest where they see opportunities. (source)
Important questions to ask today
- If nothing is different about your startup today than it was in January, why not?
- How healthy is your runway? Given today's spending, how many months will you be alive?
- Should you freeze hiring to protect your runway for the near-term (i.e., until we have more clarity)?
- How has your product-market fit changed? Are your target customers/industries going to be more conservative? Are they even going to exist if this is a 3-month problem and a 2-year recession?
- Can your product address emerging problems due to a dynamic market and a society adjusting to coronavirus?
- Are there lessons you can learn from 2008 or other dramatically changing markets from the past?
- Are your employees safe, informed, and aligned in how they are planning to change their work in response to this new world?
If you are leading a startup today, chances are you haven't led (or even worked) at a company weathering a recession before, let alone a global pandemic. Remember that none of your team likely have either. It's time to go to battle together! Learn, adapt, and be decisive and you'll do incredible things.