“Just Survive.” This is the most common piece of advice that I’ve shared with portfolio CEOs over the last month.
Three additions to it:
🙈 *So far* isn’t a long-term solution.
🎱 If you’re feeling confident, stop!
❓ Who is your customer’s customer?
Some startup sectors have been hammered by COVID-19 — travel, and hospitality being the prime examples — but a surprisingly large group have, *so far,* weathered the storm. This is lulling some founders into a false sense of normalcy. This attitude will hurt many startups.
*So far* enterprise sales are slowing, but churn is stable *So far* consumer co’s are seeing dips in demand, but not wholesale retrenchment *So far* edtech/productivity tools are seeing surges in demand Maybe things will be OK?
“So far” is not a long-term response to this crisis. If, so far, you still have customers and your burn is still manageable, count your lucky stars but don’t assume those conditions will continue. If you are a startup CEO, complacency is simply never an option.
If you think you’ve got a handle on what’s happening, please try again.
The scale of this crisis is unprecedented and the second and third-order consequences are impossible to predict. Use this time to prepare, and prepare for the worst.
What does that preparation look like? It’s going to vary for every startup, but the first order of business is understanding the sources of your revenue. One concrete way to do this is using a modified version of the “five whys?”
Five whys (or 5 whys) is an iterative interrogative technique used to explore the cause-and-effect relationships…
“The Five Whys” is a problem-solving tool that attempts to understand the root causes of behaviors. It works like this:
❓ Define a problem
🔻 Ask why that problem is happening
🔻 Ask why those conditions prevail
🔻 Ask why again
🔻 And again
🔻 and one more time
Toyota famously uses the “Five Whys” to eliminate the root causes of defects in manufacturing. In this scenario, startups need to ask “who?” instead of “why?” in an effort to understand the underlying stability of their revenue.
Who are your customers?
🌆 Fortune 500s?
Bicycle High-income consumers?
Who pays your customers? And who pays them? And so on.
It won’t take many iterations of this exercise before the potential precarity of your revenue comes into sharper focus.
Perhaps this exercise will reveal an unbroken chain of essential workers backstopped by a Federal money printer. Congratulations! Or, it may highlight that if a domino or two falls, it could cripple your revenue.
Forewarned is forearmed. There are companies that should legitimately be investing in this environment. Others should be cutting deeper than is comfortable. Most founders are somewhere in the middle, but too many aren’t certain. Completely understandable but dangerous.
There is less downside in “overreacting” in this environment. Everyone’s numbers are being blown to bits, so yours won’t look bad by comparison. Make the changes needed to survive. Survival is a necessary precondition to thriving later.