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Dig in. Stabilize and Survive.

Navigating your first downturn

Even the most exceptional startup founders can struggle to find a successful path for them and their business. Especially now, those paths to success can be obscured by a lack of experience, indecision, diminishing cash flow and vanishing customers.

The team at Exit Velocity have been through this before. In fact the Managing Partners started a business in June 2000, just months after the first dot com bust. Everything we thought we’d be doing in the first two years of that business changed in a matter of weeks.

Sound familiar?

But we survived and thrived over the next 7 years to eventually sell that business - just months before the 2008 Global Financial Crisis. Our subsequent earn out over the next two years was the hardest we’ve ever worked. But again we succeeded, coming out the other side wiser and richer for the experience.

So now we’re in the midst of yet another global crisis, what have we learned and how are we applying it to help other startup founders? This is the beginning of a series of blogs on the four steps we’re taking to help startup founders grow, scale and thrive (though a downturn).

The allure of raising all the capital your business needs to grow over the coming years is intoxicating. Many founders are brilliant at convincing themselves, and those around them, that their business deserves funding - and any investor would be mad not to jump onboard right now to ride their success to the top.

But as we know, a crisis like the one we face now, is a great leveler. Any weakness in a business is more easily exposed, with issues around cash flow, resources and customer acquisition compounding every week. And with seed and venture capital extremely constrained - founders have to find new innovative ways for their business to survive.

Venture capital will flow back into the market. But what do you do in the meantime?

Dig in, stabilize and survive. Then think about growth

Dig in, build stability and survive

1. Re-evaluate the business

There’s no easy path through a crisis. Even if you’re lucky enough to have established product-market fit with cash coming in the door, you’ll inevitably come across new challenges every day.

  • Be honest with yourself. You’ll be making unexpected decisions every day and sugar coating the issue won’t resolve them.

  • Every part of your business has to be reevaluated from the bottom up.

  • Every cost in the business, every commitment, contract and agreement re-negotiated.

  • Take a long hard look at your existing customer base, double down on great customers and be prepared to cut the unprofitable ones.

  • Reach out to partners and vendors. What can they do to help? What are they seeing in the market and what suggestions might they have to help you through this. Ask vendors to reduce their fees, If you don’t ask you won’t get.

Build a new plan - and revisit it every day. There are no precedents or rules here - you have to do what works for your business. Your long term playbook may still be ok, but the short term plan needs to change to protect your long term vision.

2. Reset your goals

Your previous short to medium term goals and aspirations may no longer be applicable. So be prepared to reset them and drive the business towards a completely new set of targets.

We use a simple but effective process at Exit Velocity called 3thirty3™. Ask yourself, what can you do in the next 3 hours, 30 days and 3 months? This quickly focuses you and the team around short to medium goals that have to be achieved for the business to succeed.

  • Reset your goals and align the company around them

  • Focus on what you and the team can do in the 3 hours, 30 days and 3 months.

  • Insist on accountability to drive results

  • Don’t be afraid to be honest and direct, your success is your team’s success including employees, investors, partners and vendors

3. Reach out for expert help

When time and capital is tight during the early stages of your startup, getting access to seasoned experts is critical to your success. Hiring the wrong people into your team will cost thousands and waste valuable months of development time.

Great Founders have a natural ability to learn fast and lead through challenges. But sometimes that confidence comes with a reticence to reach out to mentors and advisors who should be motivated by the value they create and not the cash they earn. Learn from their mistakes and don't waste time, energy and capital on learning everything for the first time.

You don’t need people who will cheer from the sidelines, you need experts that will get into the trenches with you and make a real difference.

  • Great mentors and advisors can make the difference, but choose wisely

  • Make sure they’re as invested in your long term success as you are

  • Ensure they can get into the detail, take on responsibility, and work alongside you to deliver results. High level strategy is fine, but delivery is better

4. Stabilize, Grow then Scale

You have to get through this. Right now your focus has to be doing whatever it takes to come out the other side. So achieving stability as quickly as possible is critical. After all, the impact of coronavirus is clearly going to last a lot longer than initially thought.

Don’t waste a crisis. Use this time to map out a revised plan for growth and execute against it. Establish how you want to measure the business now. Those metrics will have changed, so measuring real value versus vanity will never be more important.

  • Make sure your business is stable first before thinking about growth again

  • Measure value not vanity metrics

  • Make sure your runway has plenty of buffer in it to get through to breakeven and beyond. And that means planning for a worst case scenario of 12-24 months

At the end of all this, you will have built a valuable business based on strong foundations that’s ready to scale when the time is right.


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