Founders in the Bay Area have all spent the past couple weeks putting together contingency plans for their tech startups. We want to help export some of that knowledge to SE Asia seed companies to make sure you’re thinking about the same things for your company. We’ll dig into the details, but at a high level, there’s really only two things that matter:
- Take care of yourself, your families, and your employees
- Have a solid plan for surviving for the next 6+ months with no fundraising and 50% of your current revenues
There’s plenty of information on #1 online already and great examples of companies and individuals going above and beyond so this message will focus on the latter. Here are tactical steps you should do now to make sure your company is setup to survive the economic impact of COVID-19.
For CEOs out there that follow Silicon Valley Lore - it’s time to be a wartime rather than peacetime CEO:
- Revisit your operating model - If you don’t have a plan for the company to make sure it survives the next 6 months, make one now. Model in a 50% drop in revenues at the same expense level. The majority of businesses are or will be seeing their revenues dramatically drop - if it hasn’t hit you, it will hit your suppliers, vendors, partners, and clients you’re selling into. Fundraises, partnerships, sales, etc will all be more difficult in at least the next 6 months and possibly longer.
- Make immediate changes - As a seed company, if you can survive for 9+ months, you have a good chance to survive. If you’re 6-9 months consider making changes now. If you’re at <6 months, you should immediately reduce your expenses. Given 75%+ of early stage expense is headcount, that’ll likely mean layoffs - but you can also be creative, perhaps renegotiate with your friends and employees on shifting compensation to equity, or reduced salaries, furlough, etc. Cut all marketing expense (your CAC won’t be worth it anyway), shift founder’s time to more serious sales and customer development, and perhaps even renegotiate with your landlord if you’re on a fixed lease.
- Hiring Freeze - You’re likely not going hard on FTE hiring at this early of a stage, but if you are you should stop now. Support your friends less lucky than you who maybe going through their own company layoffs. For the savvy out there, this actually might be a good time to get your friends to chip-in and help with concrete important tasks as their ‘side hustle’
- Debt capacity - If you have a debt line, this is also a great time to check in with your lender to see if there’s room for more favorable terms and let them know you have a forward plan. If you haven’t already, pull down all available debt capacity you have now.
- No Fundraising - Unless you have extremely strong relationships with VCs or other capital sources that you’ve been talking talking to in the past month now is not the right time to fundraise. Everyone is right now reconsidering their positions, tightening their diligence, and the best VCs are making sure their existing portfolio companies are not going to die. New investments will be rare and slow - shifting focus to fundraising will only be a waste of your time. Focus on customer development, sales, product, and traction now. Fundraise later.
It’s also important to call out that crisis and downturns like this are where real companies are made. Hard times give clarity and perspective. Look at it as an opportunity to establish a stable foundation for your company and then really hit the gas when the world starts returning to normal. We’ll get through this.
Have more specific questions about your startup? Email us at hello@iterative.vc and we’ll setup a call to answer your questions.
Stay safe out there.
