1/ A slow, steady thread on how to survive a recession or macroeconomic stress test if you’re a startup. I had to quickly learn mid-2009 during Y Combinator, I was 20, and had just raised $500K. The ordeal would last ~18 months. Here’s how to survive...
2/ If you’re only selling to primarily startups, a cash crunch will increase the rate of startups dying from “natural causes.” So, if you’re able, now is the time to diversify. If not, work on annuals to shift out the risk. You will still be able to sell to startups, just fewer.
3/ Now is a good time, as you brace for impact, to get really focused with the resources you have instead of what you could have. Try to double down on your core products vs risky endeavors. You don’t need to stop hiring but a way to shift risk is to get pickier with hiring.
4/ Beware of investors who will take advantage of you: in the darkest moments, multiple VCs wanted to find our 2-person team a CEO. I think the environment has greatly improved but it’s been a while since investors had the same power. They will get picky with investments too.
5/ One of the most metrics that people will care about is if you *can make money*. That’s why B2B after 2009 grew so rapidly later—out of necessity certain startups are born. The stress test is why folks feel it’s a great time to start: a lot of the right behaviors get enforced.
6/ In 2011, we went out to raise our Series A. Things had calmed down for seed but we quickly got passed on by 11 VCs. We were doing $45K/mo which grew to $190K a year later. We were forced to raise bridge that barely came together. There’s no shame in this. Raise what you need.
7/ Expect investor decision making to take longer if things worsen. I’ve talked to many founders waiting till they had 2-3 months of runway. This correction will feel surprising & create unnecessary stress so plan ahead. Due diligence will get more intense—have the numbers ready.
8/ It's never been more important than right now to be honest with your team around burn rate, odds of success, areas to focus, etc. The folks who stick around will appreciate it & work hard. Some others might move to more stable pastures--that's fine. It's all hands on deck.
9/ It's time to get lean & scrappy culturally. Being lean means removing expenses that are unnecessary. The right employees don't care about free Kombucha. Being scrappy means finding clever solutions to otherwise difficult, time costly, or expensive options.
10/ One little trick I used to keep expenses at bay was to call in my credit card for fraud every 6 months. It was annoying to re-add it to services I actually used but it guaranteed cutting recurring expenses I wasn’t thinking about anymore without analysis.
11/ Unexpected times create new constraints for everyone. More than ever, it's a great time to start companies that seemingly make everyone hyper-aware of the situation they're in. Should you help people save money? have fun indoors? learn differently? will video feel less awk?
12/ It is important to draw a distinction between what you *want* to raise & what you *need* to raise to survive. After 11 straight "no's", we managed to string together $500K. We were so demoralized/overjoyed after we went straight back to work. 1.5 years later, we had 75% left.
13/ Time is of the essence: launch, stop waiting, make users start paying, think about distribution as much as you think about product, be generous w/ equity & be aligned, culturify the elimination of $ waste, improve the speed of decision making/building, don't fundraise forever
14/ If you don’t have 24 months of runway right now, I highly advise securing it. This looks like 2-3 quarters at minimum of a completely different world than we were in just a month ago.
I strongly recommend engaging Cockroach mode.
I strongly recommend engaging Cockroach mode.
15/ Investors, if you want to make a strong impression on your founders, now is the time to reach out and extend their runway in a generous, empathetic way. They will remember this act for a lifetime.
16/ Churn will rise if you’re a top 20 expense for your customers. To batten down the hatches, have your teams proactively put in a plan to retain customers now. Lock in annual deals. Discount. Ensure multiple champions exist. Comp your CSMs well. Offer quota relief later.
17/ If your business has > 50% odds today of layoffs due to cash constraints, you should have a plan for layoffs asap. This is sad to say but this will be so hard that to do it right it pays to plan ahead, find compassion, & have the runway to provide ample severance. Be kind.
18/ My favorite feature of a macro-economic shift is complete, utter, and relentless focus from you & the team. This moment helps everyone cut through all the bullshit to find what’s important.
19/ "We have 12 months of runway. When is the best time to be out in the market to raise money?"
Now.
Now.
20/ One less obvious reality is you’ll need keep growing to reach the next funding milestone while reducing burn. Meaning, you’ll still have the expectations of growth. There will be no best effort rewards 12 mo from now. So, don’t just unilaterally cut sales/mktg. Get efficient.
21/ This is not a drill: if your Plan B for survival due to a significant cash crunch is to contract w/ other companies for a bit, now is the right time to do this. You will not be on the only team--there will be competition. Find some clients asap.
Airbnb sold cereal to survive
Airbnb sold cereal to survive
22/ Believe me, things can get worse: I raised $500K @ 25% dilution (excluding YC's 7%) in 2008 after 10+ "no's" two weeks away from imminent death. Hat in hand, we would've gone back to AZ. Times are different now and the bar will still be higher but it can get much lower too.
23/ "Q: Would you recommend sharing company financials at an early stage with the team, in the interest of transparency? (ARR, months till death, cash in the bank)"
Me: 100% - yes! I wouldn't emphasize looming death every week though - maybe a tactful monthly mention.
Me: 100% - yes! I wouldn't emphasize looming death every week though - maybe a tactful monthly mention.
24/ Someone who went through the '08 recession:
25/ Your runway is not just based on your monthly burn rate. It needs to also include the amount of money to let people land safely & business closing costs. So, you might think you have a month or two more than you really do.
26/ To all the founders who plan to lay people off to preserve their survival to buy enough time, I've been there. I am so sorry. I know this hard. I know you can't be there in-person to assist them & give them a hug. All of this is brutal. We will get through this. 💪
27/ Any idea you come up with now that can be funded, built, & can get some paying users is naturally more resistant to a macro-economic downturn than the average because they must be. Those are going to be some tremendous companies during a great economic cycle but few will know
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