Coronavirus and startups: Overcoming a financial crisis
Caya
March 17, 2020
  |  

Coronavirus and startups: Overcoming a financial crisis

Caya
March 17, 2020
  |  
Company Forensics - Learn from the mistakes of VC-funded startups | Product Hunt

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Well, it's here. 

Both of our Slidebean offices, New York and San Jose, are in areas with active coronavirus spreading, and we were forced to take action. 

In this video, we'll go over the specific actions that our team took to reduce contagion, as well as my perception of the startup and fundraising market in the next few months. 

PREPARING A REMOTE TEAM

I am a big believer in in-office collaboration. The power of an in-promptu meeting or discussion, the random chats at lunch, the coffee breaks... this is the stuff that brings a team together. 

Our hiring process for the first employees of the company prioritized a cultural fit. We ran a Myers-Briggs personality test on every candidate and matched their compatibility to their direct manager and the rest of their teams. 

While we are less strict about it now, I believe this exercise was vital in the early stages of the company to define what our company culture is. 

Most team members have at least 2-3 close friends in the office, with whom they voluntarily hang out outside work. To me, this is a track of our success in getting like-minded people together. 

But back to remote work, I was very much aware of the value of letting people work from home. Our first rule was that the WFH schedule was fully flexible but that people should come into the office Tuesdays plus one other day of choice. 

Slowly, I've given in to more flexibility, which has made people happy. We conduct quarterly surveys to check :) 

However, not everyone is compatible with the open-ended, free form nature of remote work. Luckily, all of those employees have been filtered out of our company, which turned out useful for our current situation. 

CORONAVIRUS POLICIES

We adopted full remote work today. Nobody needs to come into the office unless there's a specific in-person meeting requirement, which should be rare. 

If people need to come into the office and they don't drive, there will be company-sponsored Uber rides to avoid public transportation. 

Now, this informal in-office collaboration I was talking about is still critical to me. We have solved it by adopting tandem.chat, which is a fantastic solution to replicate this. 

In short, it lets you talk to somebody on the team without having to 'call them.' It's a click-and-talk approach. It also features a water cooler, which we renamed to the coffee machine—just a place for people to hang. 

We also made a lunchroom to get some company if you are grabbing lunch alone. Once again, it's all about replicating the in-person office conditions. 

In regards to travel, we canceled all non-essential company trips, and we brought the New York team back to Costa Rica, at least for the months to come. 

I don't want to get political here, but getting sick in the US sucks. $3,500 for a COVID-19 test is just ludicrous. The Costa Rican universal healthcare system is miles better, and having everyone here is just better. I don't get to vote in the US, but you can probably figure out my inclination. 

Finally, profitability. 

I wrote this script on Monday, March 9th. The Dow Index dropped over 2,000 points today, and it seems that we are heading into a recession. 

Our company has been profitable for over two years, which lets me sleep at night. 

Not all venture-backed companies can aspire to profitability. Some companies require accelerated growth to be able to become the businesses that the founders set out to build, but in our case, being close to profitability saved our company. 

Even when we had just raised our last round of funding, our burn rate never exceeded $30,000/mo. $30K/mo was close enough to profitability so that we could adjust and restructure our business in a few months, and stop burning capital... which we eventually had to do.

THE STATE OF STARTUPS AND VENTURE CAPITAL

Sequoia published a fantastic read on Medium a couple of days ago, which goes over their read of the market. 

The biggest concerns noted were, 

  • A Drop in business activity. Companies are likely to miss their Q1 goals.
  • Supply chain disruptions. The lockdown in China is impacting global supply chains. 
  • Curtailment of travel and canceled meetings. Many companies have banned all "non-essential" travel, and some have banned all international travel. That extends to affect sales processes and even marketing (at events, for example). 

So, Sequoia's suggestions revolve around QUESTIONING your business assumptions and figuring out if a change in strategy is required. Especially around- 

Cash runway. Do you have as much runway as you think? Could you withstand a few poor quarters if the economy sputters? Have you made contingency plans? 

Fundraising. Private financings could soften significantly, as happened in 2001 and 2009. What would you do if fundraising on attractive terms proves difficult in 2020 and 2021?

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. 

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. 

Headcount. Given all of the above stress points on your finances, this might be a time to evaluate whether you can do more with less and raise productivity.

Capital spending. Until you have charted a course to financial independence, examine whether your capital spending plans are sensible in a more uncertain environment.

Their strongest quote, 

Having weathered every business downturn for nearly fifty years, we've learned an important lesson — nobody ever regrets making fast and decisive adjustments to changing circumstances. In downturns, revenue and cash levels always fall faster than expenses. In some ways, business mirrors biology. As Darwin surmised, those who survive "are not the strongest or the most intelligent, but the most adaptable to change."

Again, I think most of their advice is pretty relevant. 

SILVER LINING

I like to close my videos with positive notes. I want to remind you that unicorns like Airbnb, Square, and Stripe were founded in the midst of the Global Financial Crisis. New opportunities opened up, and these companies were able to tackle them to create fantastic companies. 

Other uplifting news around coronavirus (courtesy of Reddit)

  • Quarantined kids in Wuhan spammed their homework app with one-star reviews, so it got taken down and they don't have to do homework
  • Huge reduction in air pollution over China due to a large number of quarantined people
  • This event is bringing a lot of attention to employer policies on sick leave, remote work, and workplace hygiene. We're very likely going to see some degree of enduring changes in the aftermath, and they'll largely all be ones that make things better.
  • A lot more people are building the habit of washing their hands properly. China CDC’s analysis of 44,672 patients found that the fatality rate in patients who reported no other health conditions was 0.9%.
  • 70% of all infected have already recovered in China. Two temporary hospitals built in China have been taken down due to the fact everyone there has recovered!
  • It’s not affecting kids very strongly, and it’s not killing them at all.
  • All the antivaxers will be eliminated when the vaccine comes out. 

That's all for today. If you are in lockdown, we have a lot more videos for you to watch, so hit that subscribe, and then wash your hands!