Thread by @mbansal14

With salary cuts being announced all around amid #covid19, many #founders are left wondering:
"Should I go ahead too?"
OR
"Should I wait and get a better grip at the situation?"

Here is what we did...
↓

Quick reminder: Every business is different, so what works for us may not work for you.

About us:
Nature of our work: Services. Design projects lasting 2 months.

On 24th March 2020:
- Team size: Me + 2 + 3 to join
- # of monthly projects: 2-3
- Sales cycle: 2-7 days

On 24th March we had enough work to keep ourselves busy for 2 months.

I was transparent with team. So I told them that we will wait and gauge the situation for a while.

Now new projects came in April. Teams productivity was hit too. We had a new person joining the team in a weak's time. So it seemed like time.

I wanted to AVOID 2 situations:
- No salary cuts, but business gets a hit
- No hit on business, but team gets a salary cut

I started with vague numbers - 10% cut... na 30%... too much... 25%? ...may be...

I didn't like where I was going with this.

Then I took a more structured approach...

STEP 1: A simple monthly cash flow statement in excel:

1. Added cash in hand
2. Mapped out assured monthly cash inflow from active projects
3. Mapped out fixed monthly expenses (negligible)
4. Mapped out monthly cash outflow of salaries (also of people yet to join)

STEP 2: Figure out base salary:

1. Calculated the salary % that would allow us to pay everyone a reduced salary for 6 months (arbitrary period - just seemed a reasonable goal)

This turned out to be 30%!

STEP 3: Figure out variable component:

1. Took an avg of revenue generated per project
2. Made it 70% (if we have to lower our rates)
3. Kept aside a sum from each project to extend runway by 15days (@ 30% salary)
4. Distributed rest of it as salaries

Everyone get another 30%!

So we rolled out the following model depending up on the # of projects delivered in a given month:

30+30+30+10

0 projects: 30% sal 😩
1 projects: 60% sal 😏
2 projects: 90% sal 😎
3+ projects: 100% sal 🥳

Few thoughts:

- It seemed reasonable considering we were doing 2-3 projects anyways, plus we had some people joining
- We announced this on 23rd April or so
- Applicable from June
- For May, we announced a 30% cut (did this to have 6 month runway without going below 30% salary)

Team's response:

Existing team and new employees accepted it with no friction.

I hope that is out of reasonability & transparency of the model and not lack of choices!

Now it all depended upon project inflow.

100% of our projects came through referrals. We were doing zero BD/marketing.

So to create a healthier top of the funnel, I am starting do things I have not done in ages!

Just started
- Active engagement with VC firms in our network
- Publishing on twitter

In pipeline
- Content generation
- Write to newsletter subscribers

Happy to hear your thoughts on our approach/model.

Also do share your approach. I am sure many other founders sitting on the fence will find these inputs valuable.

#startup #learnings

*NO new projects came in april! 🤦🏼‍♂️

In the tweet above, I meant "NO new projects came in the month of April!"

Just one extra letter at the wrong place! 🤦🏼‍♂️