Navigating the tough times ahead

It’s pretty clear at this point that things are going to get a lot worse in the weeks and months to come before they get any better. The number of COVID-19 cases is accelerating worldwide. Travel restrictions have gone into effect as countries around the world close their borders to curb the spread of the virus. The S&P 500 is down 30% from its peak a month ago and the Dow plunged 3,000 points on Monday alone. Morgan Stanley is now viewing a global recession as their “base case” with an implied $360B loss to US GDP.

As if all that wasn’t enough, some of the yoy OpenTable data coming in is absolutely terrifying with respect to the broader implications we will soon see in the macro economic data. The downturn ahead of us will impact many sectors and millions of households in the US.

OpenTable

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Restructuring & Transformation in a Recession

As I’ve spent much of the past week discussing what this all means with founders in and outside of our portfolio, I find myself thinking a lot about my time in the consulting world. During that time, I had the fortune (or misfortune!) of working on a handful of projects involving companies that had fallen into hard times and required what we called “Restructuring and Transformation Services (RTS).” Regardless of the specific situation, in all of these cases, we would follow a very basic framework designed to diagnose and then triage the (mostly) cost-cutting work from “least painful” to “most painful.”

If you are a founder/CEO finding yourself in a situation in the months ahead where you need to go through a restructuring/ transformation exercise, hopefully this basic framework can help you think through what to do and how to do it.

1. Establish dedicated owners: The first thing to understand about any transformation effort is that you have to have clear ownership. In my consulting years, we would always start by working with the client to set up a “Transformation Office” led by a Chief Transformation Officer. The “TO” would lead the effort, create urgency and drive action. As a startup CEO, the buck stops with you. But it’s a good idea to create a small, cross-functional task-force to serve as an advisory council and to drive change within the organization. These people will be working on the transformation while also doing their full-time job so important to pick people who have the capacity and commitment to the company to wear multiple hats through a difficult patch.

2. Diagnose the problem: The next step is to figure out where you stand, particularly from a cash perspective. Some basic questions to ask and get clear on before you jump into problem solving:

3. Establish the target: After you have diagnosed the problem, determined your cash position/ runway and understand at a high level what levers you have to pull, you now have a “Baseline” to work from. It’s now time to establish the “Target” for cost-take-out. This is the total cost you need to remove from the business to get to a certain “cash-inflection” point (i.e. a new injection of cash via fund raise or getting to break-even.) This target now forms the basis for all actions you put into motion. The target should be a specific number with very clear milestones (ie. mini-targets) that you can work towards achieving.

4. Create a cadence and review process: It is important that the transformation task force you meet with gets into a regular cadence (this means meeting weekly and if the situation is dire enough, daily.) Get in the habit of tracking all transformation initiatives using a project management tool. During my consulting days, we used Wave. But you can use AsanaTrelloMonday or another project-management tool of your choice. The important thing is to ensure that the tool can track initiatives, owners, progress and tie to real outcomes in the P&L. The transformation task force should regularly review progress using the tool’s dashboards and elevate the most important decisions to you, as the founder/CEO, to ultimately make.

5. Focus first on non-personnel costs: When hunting for cost-take-out, the easiest place to start with is non-personnel costs. Here are a few areas to look into — remember any savings here could well mean one less RIF:

6. Be thoughtful about personnel costs: For obvious reasons, things get tricky once you start tapping the personnel-cost bucket; exploring RIFs should be a “last resort.” Once it becomes clear lay-offs are coming, morale tends to slip as does productivity. This is particularly difficult at a startup where things tend to be smaller and feel more personal. Some general tips:

7. Remember the good times will come back: Keep in mind that recessions are temporary and your short-term goal as founder/CEO right now is to “just survive.” But eventually things will pick back up. Customers will return and the momentum will swing back in your favor. When this happens, you will want to be in a position to seize the moment and bounce back in full strength. Having a bit of foresight to “see around the corner” and prepare for that moment will help you return in full force.

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Additional Resources by Topic

In the last few weeks, there have been some really great resources that have come out on topics related to the coronavirus, navigating the pending recession and how to move forward during these difficult times as a founder. Below is an aggregated list of resources worth reading by topic.

General Coronavirus (COVID-19)Information

HR & People Management Resources

General Advice on Downturns

Tools for Planning in a Downturn

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Here’s to hoping that this downturn is as short-lived as possible and the roaring ‘20s come back in full force quickly! If you have additional resources I should add to the list above, send them my way and I will make every attempt to keep this list current.

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