THE GOOD TIMES ARE IN QUARANTINE


The global spread of the coronavirus is making the world more anxious by the day. And those deepening worries are reflected in the fluctuating stock market. 

Sequoia Capital, one of the world’s top venture capital firms, sent a note to the founders and CEOs in its portfolio last week warning that coronavirus could usher in a prolonged global economic slowdown, fundamentally altering the business environment and urging them to brace for coming economic shocks.

In sounding the alarm, the firm called the coronavirus the “Black Swan of 2020.” “Black swans” are rare, unexpected events that cause a massive impact and heavily influence global activity. It’s worth recalling that the phrase "black swan" gained currency a decade ago during the 2008 recession and aftermath, providing a compelling way of thinking about the simultaneous crises in banking and housing.

WHY IT MATTERS
Sequoia has been a fixture of Silicon Valley for decades, helping fund generations of companies, including Apple, Google, Instagram and DoorDash. Back in 2008, as the financial crisis was starting to have a negative effect on the economy, the VC firm sent a similar, ominous presentation, titled “R.I.P. Good Times” to the founders and CEOs in its portfolio with the intention of preparing them for what was to come so that their companies could survive. The presentation is still referenced in Silicon Valley circles today.

Sequoia's memo this year provides guidance on how to run a startup so it can survive the business and economic challenges posed by the spreading effects of the coronavirus. Sequoia's advice to their portfolio companies is as follows:
  • Get ready, cut expenses, preserve cash. Think through how much cash you have. "Do you really have as much runway as you think? Could you withstand a few poor quarters if the economy sputters?"
  • The money is going to dry up. Don't count on raising money. "Private financings could soften significantly," Sequoia warned, before adding an optimistic note. "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. Constraints focus the mind and provide fertile ground for creativity."
  • Prepare to survive tough sales. Be forewarned that sales might just fall apart. "Deals that seemed certain may not close. The key is to not be caught flat-footed."
  • Cut advertising and marketing expenses. Take a hard look at your marketing spend. "You might find that your customer lifetime values have declined, in turn suggesting the need to rein in customer acquisition spending."
  • Be prudent with capital spending. Take a look at capital spending. "Examine whether your capital spending plans are sensible in a more uncertain environment.“
Survival Strategies and Tactics…
  1. Cash runway. Do you really have as much runway as you think?
  2. Fundraising. Private financings could soften significantly, as happened in 2001 and 2009.
  3. Sales forecasts. Even if you don’t see any direct or immediate exposure for your company, anticipate that your customers may revise their spending habits.
  4. Marketing. With softening sales, you might find that your customer lifetime values have declined, in turn suggesting the need to rein in customer acquisition spending to maintain consistent returns on marketing spending
  5. Headcount. Given all of the above stress points on your finances, this might be a time to evaluate critically whether you can do more with less and raise productivity.
  6. Capital spending. Until you have charted a course to financial independence, examine whether your capital spending plans are sensible in a more uncertain environment.
The Bottom Line…
Sequoia is saying publicly what many investment firms have been telling CEOs privately: It's now prudent to prepare for the worst.

Popular posts from this blog

The Essence of Leadership: Humility & Empathy

Image
Article by Steven K. Haught, MBA If you know everything there is to know, then you can take a pass on this article and move on to something more to your liking. Or… maybe your curiosity will get the best of you and you will stick around and read.  After that, who knows what might happen to you. Let's talk about the underlying attributes of genuine effective leadership. What causes a company to experience success?  Is it the leader's brilliance, or the leader's impact on the people that surround him or her?  Impact can of course be interrupted many ways. Quite often startup cultures, particularly tech companies, gets caught up in the bravado of “crushing”, “disrupting”, “paradigm-shifting”, or “becoming the next unicorn.”  Success is a heady business.  Anyone who has experienced this kind of adrenaline knows what I am talking about.   Very quickly and almost without awareness on the part of the leaders, especially the founder, the compan...
Read more

STRATEGIC PLANNING: Develop a Scenario Planning culture

Image
Scenario planning is a must-use process for functional leaders to drive immediate actions, decisions and longer-term strategic planning.  The COVID-19 pandemic has triggered a wide range of strategic planning activities. As the focus turns largely to recovery and renewal, functional leaders are increasingly pulled into enterprise conversations about likely outcomes when the way forward is neither clear nor certain. They also have to plan for a range of potential outcomes for their own functions. Scenarios are compelling descriptions of possible futures — not necessarily the most probable ones, but plausible, coherent and substantially different ones driven by the unavoidable barriers facing the business. Business models are evolving frequently, particularly as executives consider which pandemic-related trends will become permanent. This requires a prompt shift in the strategy that defines how the enterprise will play and win — and requires all functional leaders to ...
Read more

EXECUTIVE LEADERSHIP: Involve Everyone in Strategic Planning

Image
Real leadership means creating the future, but who has the time? Senior management has to manage the business for profit, yet decision-making for day-to-day stability can stifle new ideas and development.  Many companies, particularly in professional services, have deep expertise beyond the management group, but these staff are often excluded from innovation teams and become more accustomed to taking orders than breaking molds.  Creativity and job enthusiasm suffer, and a critical need goes unaddressed. How to disrupt the stagnation and tap into this huge capacity? The common solution is to rely on strategic planning. This is essential, but only goes so far, setting out an overall road map but not filling in the detail of how to get there. It gives management a chance to feel they are leading the charge and will discuss with the teams so they have a “voice.” But it often has a top-down feel, which for staff can mean a requirement rather than an opportunity. ...
Read more