8 min read
The opinions of the employees of You are personal.
- Trust your co-workers (and your advice) when the news is bad.
- Save money, get creative with stocks.
- Make small cuts early to avoid larger ones later.
Ben Horowitz, Co-founder of the Silicon Valley venture capital company a16z, distinguish between circumstances that require a leadership approach in “times of peace” and in “times of war”. In peacetime, CEOs can focus on expanding the market and strengthening the company’s strengths. During the war they defend themselves against an existential threat.
For much of the past decade, we have seen a period of peace fueled by economic growth and prosperity. But the outbreak of the COVID-19 pandemic quickly put things on war mode, as usual.
I recently sat down with a guide from Silicon Valley who became known as a “course changer” for portfolio companies during his tenure at Battery Ventures, the Dotcom Crash, and Shasta Ventures during the Great Recession. Evan Liang, CEO of LeanData, is now applying these practices and lessons learned to his own startup.
Liang shared his take on the strategies aspiring CEOs can use to stay agile and responsive in our changing landscape. Here are his five tips to weather the current recession.
1. Trust your co-workers (and your advice) when the news is bad
Photo: You X Ventures via Unsplash
It may not seem intuitive, but there is never a greater need for transparency than when the war clouds are gathering. This is exactly where managers have to deal openly with employees, consultants and the board of directors and make them real partners. In a recession, these people are actively looking for bad news and need you to trust them. Not sweet. Let them know the battle plan and how their roles will help win the war.
Liang said he was impressed during Dotcom’s bankruptcy when he was on the board of directors of a software company. “The management team adjusted for the bad news as the company went from six to one month. When the facts became known, the management was dismissed without further ado and the board of directors took over the company. We are focused on rallying the troops and restoring staff confidence. And with their help, the company landed gently. “
2. Save money and get creative with stocks
Photo: Ibrahim Rifath via Unsplash
Cash is king during a recession, especially when the future is uncertain. There are several levers that can save you money and one of the most important should be offset.
Liang says, “You need to be proactive to save jobs during a recession, and using stocks instead of cash can help you do that. It is important, however, that you understand people’s different motivations – for some, cash is vital, while others prefer to be rewarded with stocks. If you can segment your people according to the needs and wants of each person (cash or capital), you can create mutual benefit for all while improving your cash position, fostering long-term loyalty, and protecting the jobs of the people you need to get through help the recession. “
But it’s not just the employees who worry about the remuneration. During the war, a variety of vendors are often open to accepting stocks instead of cash, e.g. B. Homeowners, Consultants, Parts Suppliers, Insurance Companies, Mortgage Holders, and various service providers.
“In 2001, it wasn’t particularly difficult for the startups I worked with to offer options to the owners – they wanted the stocks,” says Liang. “In the current recession, compensation in payment may not be a ‘need’ issue. Many homeowners and others who need to be paid have their backs against the wall in today’s economy. Offer them stocks that come with something Cash is sweetened and they may be willing to take the risk. “
3. Make small cuts early on to avoid larger ones in the future
While small budget items may seem insignificant on their own, they add up significantly – think of unused software licenses, TE, monthly waiting times, off-site office space, unused equipment, and free lunches. You can make cuts in two ways: now or later. Liang has learned that for maximum impact, he needs to make as many small cuts as possible and start building a runway for the company immediately sooner than expected.
“Let time be your ally. You can’t be like a deer in the headlights and wait until the situation is bad, ”says Liang. “You can save a job with a $ 10,000 monthly cost reduction. You need to involve your employees in this effort and motivate them to act quickly to eliminate the unnecessary. “
Some CEOs fear what this could mean for employees and the health of the company. However, Liang has found that if you are transparent, your employees will really appreciate the small cuts and their ultimate goal of saving jobs.
Cost reduction measures should also not be limited. Liang has learned that it is important that his income goals and cash plans assume the worst-case scenario. “I tell my people that when they put a series of cuts before me, I want to see the next set of suggestions,” he says. “This way we can quickly protect ourselves from surprises and avoid being another war victim.”
4. Get creative when looking for new funds
Photo: Bruce Mars via Unsplash
While traditional venture capitalists rule the funding base for early-stage companies, there are non-traditional avenues that are faster and perhaps more beneficial in difficult times.
In the wake of the dot-com bubble, for example, Liang negotiated with customers of his portfolio companies to exchange intellectual property for funding. “When you have strategic customers who see this as business critical to their business, they are often happy to secure access to your intellectual property and pay you up front through a multi-year contract. In other words, you get security, you get cash, ”he notes.
But you don’t have to limit yourself to customers. Liang has made successful arrangements with partners, suppliers, law firms, owners and employees who have a legitimate interest in ensuring your survival.
5. Don’t stop hiring! Recessions are a great time to find the best talent
Photo: bernardbodo | Getty Images
It’s no secret that there is a lot of talent in recessions. However, in 2001 and again in 2008, many companies lost momentum because they stopped hiring. In essence, they lost their hiring pace. And once you’ve lost, it’s difficult to take that step again.
Liang says, “I’ve seen entire HR departments being laid off during a recession. Although common, it’s a bad knee jerk reaction. Keep using your recruiting muscle during the war or you will be left behind filling key positions. Invest in key roles before they become difficult to fill. “Once you get the hang of it, invest in people to come out stronger on the other side.
Use this opportunity to thrive, not just survive
According to Liang, recessions can be liberating. “You can act quickly and see results immediately. It’s very stressful, but also very powerful. You work with a strong imperative in these times. Because the alternative is that your company may die. “