On March 31st, 2020, the The New York Times reported that congress spent $2 trillion economic stimulus on Coronavirus Relief, the largest in American history. Coronavirus pandemic, also known as #COVID-19 has already infected ~790,000 people and killed ~37,000 worldwide. According to USA TODAY, unemployment rate in the U.S. could reach a staggering 32.1% in the second quarter as 47 million workers are laid off amid the coronavirus outbreak.
So, how do Startups beat the COVID-19 pandemic?
An entrepreneur by definition takes an extraordinary financial risk, especially when all the odds are lined up against them. The best companies in the past two and a half decades were built during an economic downturn. Google and Salesforce were born in the dot-com bubble. Later, Uber, Airbnb, Instagram, etc. were started during the depths of the 2008 Financial crisis.
Best companies are born in the economic downturn
Fortunes are made in the down market and collected in a bull market. Due to the #COVID-19 crisis, now is the time to make the hard decisions and come out of the pandemic even stronger.
5 Tips for Startups
Over-Communicate
The key to building trust is High-Quality Communication. Make sure you are constantly communicating to all your customers, employees, advisors and investors. They are all in this with you. You need to be transparent by communicating the good news as well as the bad news. You will be amazed to see how many of your employees and customers stick by you during the bad times. This strategy will help bring everyone together on the same team and tackle the problem better.
2. Stress-test your company
Survival matters more than growth right now. You need to optimize unit economics.
Example for a SaaS (Software as a Service) Company: Take the Monthly Recurring Revenue and cut it by 33% and assume that's your new MRR. Then look at your burn rate to see if your balance sheet can survive this. Your goal should be to have at least an 18-month runway. If needed, use Sequoia Matrix to plan for the alternate scenarios.
3. Take all the available venture debt now
There is a good chance that this won’t be an option for too long. I normally don’t recommend venture debt. HOWEVER, the incremental cost of borrowing that capital versus your access to that capital is remarkably in your favor. The amount of interest you pay will pale in comparison to your ability to have the $$ to maneuver around this crisis.
4. PROFIT > GROWTH
For the past decade, a lot of VCs have recommended startups to not worry about generating revenue, but rather to focus on user growth. This works great in a #bullmarket, however, during a #bearmarket like now it’s time to reduce burn rate and focus on surviving. This means it’s time to become cash-flow positive and that will give the company access to more working capital to pay your employees, operations, etc.
Don’t forget what Warren buffet says:
Rule#1: Don’t go out of business. Rule #2: Don’t forget rule #1
5. Become a WARTIME CEO
Remember why you started your company and think about the impact you want to make on the world. As a great founder, you need to get creative and think outside the box to make hard decisions. As Dan Gilbert, CEO of Quicken Loans says:
I have never seen an old and broke entrepreneur
About Tops
I am a 2x Founder, DJ, and an Investor in over 30 startups. I’m obsessed with mobility, under-utilized assets, and breakthrough technology. Currently, I am an EIR at Techstars, Director at @BackstageCapital, a Venture Partner at Venture Catalyst. I am easily bribed by #Brunch & #Cortados. Learn more about me and get in touch at iamtops.com. 🙂