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  • Jeff Waggoner

Disruption



Disruption


Pandemic is here. Sequoia capital proclaimed to its portfolio companies recently that coronavirus is a “black swan” event and startups should brace for turbulence. Many states and municipalities have embraced lock-downs of some form and plenty of evidence from overseas suggests this is the start of a major disruption. As a CEO, what does this mean to you, your company, your employees, customers, investors, and all the families of these people?

There is no set roadmap to a situation like this. The last guide we really have in the US is the 1918 Pandemic. It was ugly to say the least; 1/3 of the world became infected and over 50 million people worldwide and 675,000 in the US lost their lives. The virus impacted the world and the US In a significant way in 3 waves in Spring, Fall, and Winter of 1918. Mutations of this virus are still with us today in the seasonal influenza that continues to impact us over 100 years later taking roughly 30,000 to 60,000 lives in the US each year. Like then, we do not have any innate immunity and we have a lot to learn, but we do know a lot more about infectious disease and the relationship between mortality outcomes and health system supply vs. demand. That knowledge is guiding us to shelter in place, voluntarily shut down our economy, and slow the growth to enable our health systems to manage the demand.

Contrary to revisionist history I hear often repeated, the 1918 Pandemic did not cause the great depression (which definitely was not so great). To think that would be to ignore a period called the roaring twenties, a decade of 3.57% average annual GDP growth, an unprecedented period of growth. History tells us this will be very ugly, but that we will recover and great prosperity and health also lies ahead.

How do we manage the disruption? In the remainder of this blog, I will share some of the thoughts and concepts I have been working on with my Angel and Venture backed clients; perhaps they will be of use to you.

Significant disruption brings with it two major changes from the norm. The first is that it is difficult to understand the situation; observation systems are likely overcome by events, at least in part. Second, is that the pace of change will very likely accelerate. The two interact in a somewhat insidious way in that the inability to read the situation may create a great deal of pressure to accelerate change even more rapidly; especially with multiple decision makers who may read the situation differently, like a board of directors. To deal with this, one has to recalibrate observation systems, focus on what is most critical in this particular situation, and then reformulate strategy to survive, then respond, then thrive. Data and facts, along with an honest understanding of the uncertainty associated with those data and facts will become paramount to aligning your executive team and board to a rational way forward. Further, any CEO who can manage that will instill further confidence from their team and board that will be critical in the year ahead. Both actual integrity and the perception of integrity from those around you are deeply critical at this point.

Assess the situation, use your team and board to deepen understanding about important factors, and start to build ways to understand the facts about those factors, managing by instinct until that is established. The plan you have been operating to is now invalid. To assess the situation, here is a fundamental framework:


1. Revenue:

  • Are your customers stable? What is their likelihood of continuing to supply revenue due to changes in buying / using cycles as well as their financial stability?

  • Are you going to be able to continue to close deals and bring on new revenue? Are your prospects stable, how is the buying cycle affected, how can you reach customers?

  • Are there changes in usage patterns that affect revenue and can you start to benchmark any data?

2. Operations:

  • Are your people safe and able to stay safe while performing their work? Are you able to continue to deliver services or product?

  • Are your systems able to support development, delivery, and support as needed given the inability to get people into the office?

  • Do your people have the needed access to information, tools, equipment, services, etc. that they need to continue to function?


3. Risk:

  • Are your key vendors stable? What impacts are they anticipating?

  • Are your key customers stable? What upstream environmental circumstances are they facing or anticipate?

  • What things are your people facing, especially key people? Are they ill, do they have family members who will need care or assistance; do they face health or financial challenges peripheral to the Pandemic?

  • How are your investors; are they committed to where you are going, do they have dry powder, how stable are their capital reserves and call capacity from any limited partners?

4. Finance:

  • What changes to expense are likely to occur because of the changes forced on the business?

  • How does the anticipated changes in revenue and expense line up and impact your finances; assuming at least 12 months of continued altered conditions?

  • Do you have enough cash to weather the storm; if not where will it come from OR what changes can you make to change the answer?

Critical to this exercise is the ability to tailor it to your business situation, accelerate it, increase the accuracy and reliability of it, and identify the changes needed to restore coherency to your short-term plans and ideally build in some margin to deal with risk.


Next, reformulate your short term strategy. What are the changes that can be made to the problem areas in your assessment? If the problem is revenue, how can you alter the sales process to enable sales to occur, if you are selling a product that no one needs right now, how can it be changed? The assessment serves as a guide to the issue, the solution is to find a way to pivot quickly on small things, and as quickly as possible on larger things. It is important to remember that business will return, likely this Summer, another pivot will be required then - possibly back to more of your original business model.

Finally, this situation challenges all of us at a very human level. Take the time to assess yourself, reflect on, and orient yourself to what is important to you. That likely includes taking care of those around you to the extent you are able, but remembering that a business that fails to survive cannot continue to provide value to anyone including its employees, owners, and customers.

If you would like some help working through these issues or just an objective ear to listen to questions and concepts, please contact us.

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