- The coronavirus pandemic has upended the way venture capitalists and startup founders interact, meaning that to raise a round, entrepreneurs need to adapt.
- These are his top five tips for building a successful company amid and after the outbreak.
- Show strong leadership, make a playbook, try an all-remote culture, assume your starting capital is zero, and adjust your marketing plans.
I’m a serial entrepreneur who founded three successful companies from 1996 to 2003. I have been a venture investor since 2004 and have helped entrepreneurs navigate through downturns. As the leader of Mayfield, a firm with a 50 year history of investing in over 500 companies — 117 of which have gone public and over 200 which have been acquired — I have seen many scenarios play out.
And as we navigate the post-coronavirus reality, entrepreneurs who want to build iconic companies should consider an altered launch path.
This downturn is like no other
Our current situation is fundamentally different from prior downturns. I anticipate that the new normal of a work-from-home culture and some form of social distancing is likely to endure for a while. In addition, the economic impact of the necessary lockdown has severely constrained startups’ access to capital. While this was true in the aftermath of the 2008 recession as well, the additional lack of in-person meetings limits the ability of investors and entrepreneurs to engage in their natural back and forth.
Another factor that is different is that the solution this time is not clear — and in the hands of the government and health authorities, not business. So the lack of predictability coupled with anxiety is higher, because lives, not just livelihoods, are at stake. Going forward, I believe that companies should assume distributed teams as the norm, not the exception; they should build superpowers around virtual versus in-person engagement; and they should make sure their value proposition is a must have, and that they are capital efficient.
I have always believed that company building is a marathon, not a sprint. Last year, I was a speaker at Stanford University’s Entrepreneurial Thought Leader series, where I provided advice to entrepreneurs by sharing five insights which have guided my 50-plus investments:
- Mission and values are critical
- Startups die of indigestion, not starvation
- Innovation happens across the value chain
- Painkillers sell; vitamins don’t
- Embrace a people-first philosophy
I believe those are still relevant and will serve as the foundation for building iconic companies. But given that we are in unprecedented times, I think entrepreneurs should develop new guidelines for building lasting companies in our new normal. Here are five that came to mind:
1. Remember that an officer never runs
This is an insight from a top Silicon Valley coach in our network, John Baird, who has worked with scores of startups as well as leaders from Apple and Nike, among others.
He quotes an old Marine saying, “an officer never runs,” meaning that in times of crisis, the officer always has to stay calm: If a leader panics, their team will panic too.
Leaders have a huge impact on the overall mood of their organization, so maintaining a sense of calm in times like these is essential. This is especially relevant as you try to raise initial or follow-on capital for your startup. While this is a tough fundraising climate, remember that people-first investors will align with your success. So don’t agree to onerous terms which may come back to haunt you, but do hold out for investors who are aligned with your values and are looking for a win-win.
2. Thriving in a crisis requires a playbook
I am a big fan of John Chambers, former CEO of Cisco, who has successfully navigated several downturns. He points out the importance of playbooks, especially in uncertain times, which help guide your actions.
One playbook that he successfully used in the 2000 downturn was to make deep cuts in the first 50 days, ensure that existing customers such as those in the automotive industry were successful, and lean into new markets such as China when competitors were frozen. This allowed Cisco to emerge as a leader out of the down times, a position they never relinquished.
Many legendary leaders are sharing their playbooks through webinars and blog posts such as the Resilience Spotlights series we are hosting with Silicon Valley Bank. In addition, there are leaders in your own network who have walked this path before and who can share actionable advice that will help you today.
3. Build a remote-first culture into your DNA
We have seen firsthand how our company HashiCorp, which was built as a distributed company, is successfully navigating these times. All their processes are remote — product development, sales, marketing, customer service, finance — so they have simply conducted business as usual versus having to transition to a new way. The company believes building a distributed team has to be an intentional process, versus simply adding a new mode of interaction to an existing structure.
A couple of key tips for best practices on remote engagement include:
- Learning how to host remote meetings. Steven Rogelberg, author of “The Surprising Science of Meetings,” advises that you set an agenda that asks questions instead of topics; actively facilitate engagement (especially on Zoom calls with multiple participants), and set the emotional tone of the meeting as a host.
- Remember that some people learn better through live chats and meetups, others through long-form pieces or Q&As. Define a formal method of communication for the group and then follow it, and know that this communications system could include multiple channels. Successful communities often have a chat system, forum system, email, and even video.
4. Develop a zero-based plan to get you to profitability
VCs typically look at runway timeframes for startups in terms of their existing capital. One of our alumni CEOs, Jake Winebaum, is the founder and CEO of Brighter (acquired by CIGNA) and cofounder of the eCompanies incubator in the late 90s, which resulted in successful companies like Business.com, Boingo, and Jamdat. He says that the discipline of building a zero-based plan, in which you assume the capital in hand needs to get you to profitability versus modeling scenarios for better times, is a necessary and useful exercise.
Here is how you can get started on building a zero-based plan:
- Assume your capital is limited to what you currently have in the bank.
- Be super conservative on revenue assumptions, both dollars and timing. Just like you, your existing and potential customers will be cutting costs which makes growing or acquiring new customers very difficult.
- Build your expense base from zero, eliminating all costs not directly contributing to growth and maintenance of the core business ensuring, at the same time, that you are continuing to invest in R&D.
- Audit your entire team and identify the key personnel directly related to the core business. This is the core team to get you through the crisis. If you need to do a reduction in force, do so in one action immediately.
- As soon as your move forward plan is complete — in days, not weeks — review with your board for approval. Don’t sugarcoat or set false expectations.
- Present the approved plan to employees in an all-hands meeting by being completely honest and transparent about the strategy and rationale for the plan.
- Finally, and most importantly, demonstrate empathy while executing the new plan.
5. Downturns are times to lead through brand and category marketing
Christopher Lochhead, a three-time public company CMO and top podcaster, has some counterintuitive advice which resonated with me. He says that legendary brand marketing in bad times can drive the agenda for an entire category and position your company to gain meaningful share through the downturn — positioning you to jam the throttle when the eventual upturn comes. He recommends you claim category ownership on your terms.
Here are two tips on this topic I find useful:
- Make yourself needed. In downturns, you need to ensure you brand your product to a must-have urgent problem, not a nice-to-have one. Most of your competitors will cut the spend and time on branding. That will open the door for you to grab the category and point of view leadership. You want to lead that conversation by doubling down your efforts here.
- Show trust and generosity. Trust is your only currency. Employees and customers will remember the companies that did right by them. So while there is much about our current reality that you cannot control, taking steps to build and manage your reputation during tough times will serve you well in good ones also. One principle that Lochhead points out is that of practicing radical generosity, doing good to help the community. An example he points to is that of Zoom giving away its software to schools, which impacts their bottom line, but will also result in incalculable uptick in their brand and category awareness.
With these guiding principles, and with the courage and conviction which is inherent to entrepreneurs, I believe that crisis can be an opportunity for the bold, so it’s time to lean forward into shaping our future together as fear is the only thing that limits one’s potential.
Article originally posted on Business Insider
Navin Chaddha is the managing director of the Mayfield Fund and a serial entrepreneur.