This post was written based on learnings from the first installment of Pear VC's online speaker series, 'Surviving the Downturn Economy', hosted with the following CEOs and investors:
Bob Tinker (CEO of MobileIron during 2007-09), Mahesh Ram (CEO of Solvvy, formerly CEO and EVP of GlobalEnglish during 2007-09 and 2001), Heidi Rozen (Partner, Threshold Ventures, investor during 2007 and 2001, CEO of T/Maker during recessions in 1982 and 1990), hosted by Mar Hershenson (Managing Partner, Pear VC). Also crediting Andy Byrne (CEO of Clari for this article).
I hope this helps, please feel free to reach me at [email protected] for suggestions.
I will write a separate post on learnings shared around early-stage fundraising.
TLDR:
- Your job is to survive, not thrive. You need to have >12 months of cash left. If you can't do that, cut expenses until you do. Cut early, and cut once only.
- Revise revenue projections. Give yourself: a clear understanding of how revenue contribution to cash will change, which customer accounts to prioritize, and how to set goals for your team in an uncertain, downturn environment.
- Protect your existing base, talk to your customers, adapt and innovate your product & sale to meet customers' changing realities.
- Leaders and great companies are made in times of crisis. Take care of yourself, empower your teams, and have hope.
Cutting expenses
- The companies who survive are the ones who adapt quickly. You need to have >12 months of cash left (and factor in point #3 below into your runway calculations). If you can't do that, cut expenses until you do. Cut early, and cut once only.
- "Revenue falls faster than expenses" means: you can go from 18 months of runway to <9months left in 30 days.
- Look at your hiring and spending plans. Keep only what is absolutely necessary. You likely have some "nice-to-have" or growth-oriented plans. Be bearish.
- Think about your costs in fixed vs. variable buckets as you determine where to keep and where to cut.
- Fixed cost:
- R&D (Eng, Product, Design)
- SG&A (Executives, Customer Support)
- Usually, fixed costs influence Existing ARR (renewals) and Expansion ARR (upsells)
- Variable cost:
- Sales & marketing
- Usually, variable costs drive New ARR (net-new logos)
- Cut early, and aim to cut once only. We all want to cling on. Humans have a hard time understanding logarithmic progressions, and hurting those we care about. But the companies who survive are the ones who adapt quickly.
Revising revenue projections
- Modeling scenarios is hard. Be conservative in your revenue re-forecasts.