Thriving in Crisis
Updated: May 30, 2020
Thriving in Crisis
It is now quite clear that the disruption of the last 5-7 weeks, depending on where you are, is going to continue for quite a while. The news of the virus is full of noise, with contradictory, confusing, and sometimes irrational conclusions. People and the businesses they run and participate in must develop a model for thriving in crisis, constantly learning to adapt to rapidly changing conditions. In this blog, I will present a simple model for thinking through this process that you can use with your team.
Crisis is a time of danger, when decisions must be made with significant consequence, a turning point. As a first step, the objective is stabilization from disruption, next the challenge is to diversify and pivot for products and product lines that won’t sell, can’t be delivered, or can’t generate cash and/or strengthen and exploit those products and product lines that can sell, be delivered, and potentially generate cash. The steps can be built using elements of the 6 stages of the corporate development playbook, with appropriate modifications.
Each of these process steps refer to other blog posts; click below to link to those posts:
There are a few key guidelines for modifying these processes to transition through this situation:
Minimize each step as much as possible; the objective is to get through to qualifying a product on which to generate revenue as quickly as possible.
Remember to cast market perceptions and potential product uptake taking into account the altered circumstances of each of your potential market segments; buying habits will change. You will not be keeping all the same vendors, why should you expect that your customers are not going through the same thought process.
Vanity market and traction opportunities must be ruthlessly stamped out. Before the disruption, those market segment that were never going to be profitable or that had long sales cycles – but looked great in press releases and board presentations are things you cannot afford anymore – all that matters is generating positive cash flow.
Make big bets and validate them quickly. You don’t have time to do widespread market mapping; use your experience and market instinct to identify valuable places in the market space, and then focus on rapid validation.
It will be possible for this process to result in identifying that there are no viable options; preserving your cash and your investor’s cash and being honest about the circumstances may position you best for the future. Those investors will remember that you respected their investment, and if you did not.
The objective of this process is to identify products and services and market niches into which you can generate revenue, then quickly triage and streamline both the development, fulfillment, and sales and marketing processes to preserve cash. Once basic stabilization has been accomplished, you likely have a defined runway of time before you run out of cash. If you are cash flow positive at this point, congratulations, you are in better shape than many but still may find the rest of this set of exercises useful.
Using your defined runway, you are either in a situation where you have products that can sell or you are not. If not, the challenge is first to identify pivots through customer discovery to identify new product / market fit combinations to sell. Ideally, these will be pivots from your previous core products that utilize some already development elements or adaptations of existing products for new market segments.
The steps of product / market validation and business model validation can also be streamlined. The focus is not so much on perfecting a product / market fit for the sake of future margin, optimal market placement, minimal churn and the other facets of ensuring strong Lifetime value to customer acquisition cost ratio as it is on simply finding products that sell and generate some positive cash flow to keep the lights on and the core employees paid. The objective is at least more runway.
Rebuilding and growing from this situation will involve steadily adapting out of this streamlined state back to achieving strong customer value delivery, appropriate gross margins, minimal churn, and appropriate LTV:CAC ratios. Along the way, you may pass through additional disruptions – another wave of the virus prompting another shutdown or financial events in one segment of the economy triggering rapid change in another, or possibly differing economic and health conditions from one geography influencing yours. It is also likely that the process of transitioning from cash flow neutral but de-optimized for growth back to growth will have to be iterative.
Each of these steps require different ways of thinking, different skills, and different focus from each other. As a veteran of over a dozen turnaround initiatives often in high-growth companies, I can say with experience that one of the greatest challenges to a crisis is finding the objectivity to abandon what isn't working, move beyond entrenched ideas and pet projects, and use what data you have to guide objective decisions.
If you would like some help working through these issues or just an objective ear to listen to questions and concepts, please contact us.