Venture Capitalist at Theory

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3 minute read / Mar 20, 2020 /

Six Startup Disciplines for Challenging Times

I wrote earlier this week about estimating the impact to growth rates during this challenging time. Speaking with startups, I’ve collected a list of disciplines that are going to become very important in the next period.

First, transparent communication. David Sacks wrote Happy Talk versus Hard Talk, which is an excellent post on how to communicate during a crisis. There is no better example than Winston Churchill. As you articulate communication plans, speak with transparency, candor, and gravity. Arne Sorenson’s corporate address to the Marriott company is a role model.

Second, gauging customer health. Most SaaS companies will have existing customers. Some of these customers will be insulated from the virus. Others may benefit from it. Many of them will suffer from it. Customer success and account management teams should focus on understanding customer health. This is important to project churn rates, assess timing of software payments, and estimate the impact on cash flows/burn. If a meaningful fraction of customers no longer pay the balance of their annual contract on the renewal date, then your startup’s cash flows will worsen. It’s important to anticipate that and plan assuming it. Some startups may face meaningful attrition within their customer bases. Estimating this ahead of time is an important exercise before developing a new financial model.

Third, moving from annual planning to quarterly or monthly planning. The volatility in the market is so great that long term projections aren’t likely to be meaningful. It might be worth reverting to an earlier stage of the 4 sales commission structures. Alternatively, it might be worth moving sales teams to monthly goals or management by objectives (MBO).

Fourth, runway elongation. This can be done in many ways: raising capital, borrowing debt, and dunning. Dunning is the process of collecting outstanding payments and communicating with customers about them. DSO or days sales outstanding is the highest level metric to understand the company’s ability to dun. The CFI has a formula for calculating DSO here. Getting a handle on cash flows is critical for companies with smaller balance sheets.

Fifth, novel forms of demand generation. Some sales teams are focusing not on closing new business, but building the pipeline for customers by offering products and services for free or a nominal cost during the challenging time. Building trust today will be rewarded with friendship, trust, and a contract later on. For example, Zoom has a section of their website dedicated to helping people.

Sixth, leadership. Great leadership is different than great management. This was the topic of my conversation with Nick Caldwell, the Chief Product Officer at Looker, which was scheduled for SaaStr. Management and leadership are different. Management is about keeping the trains running on time and creating stability. Leadership is about identifying change and opportunities to evolve, and inspiring people to pursue them.

Read More:

Estimating the Impact of the Coronavirus on Growth