Investors supporting startups in difficult economic times are frequently called on to give advice to CEOs trying to cope. Financial issues like the cash-out date and how to raise money are always central questions, but reducing financial burn for a pre- or early-revenue startup is not the only challenge. Difficult times add an additional layer of stress to a job that is already extraordinarily stressful, and that can lead to major burnout.
Wanting to be a supportive investor does not mean you will always know what to say or have creative ideas to share. So when we recently gathered 35 of Launchpad’s portfolio CEOs for a Summit that happened to coincide with the start of a downturn, we took the opportunity to ask them all for ways they have been managing both “burn” and “burn out.” Here are the ideas they shared with us.
Ways to Manage Financial Burn in a Downturn or Recession
Top ideas from our CEOs included:
People
- Look for ways to improve productivity by utilizing software automation of repetitive processes
- Look outside the US for staff members and consider offshoring non-critical functions where you can get the same quality for a lower price
- When employees ask for additional benefits (added medical coverage, expensive perks) remind them of the value of their stock options and explain that the business needs as much of its cash reinvested as possible
- Look for opportunities to outsource non-critical functions in the business where it is less costly
- When things are extremely tight, consider a temporary salary reduction (including senior management) and offset it with a stock option plan to incentivize people
Financial
- Pressure test assumptions about revenue & customer demand and re-do your cash forecast regularly
- If you are currently raising, fill or over-subscribe your round
- If you are planning to raise, start earlier than usual and try to get the round done quickly, even if you have to offer slightly better terms
- If you are contemplating signing a lease, hold off for a little while if you can
- Delay non-essential hires
- Stay incredibly focused on unit economics and prioritize selling to the most profitable customers and use cases
- Renegotiate deals with vendors to try to get a better price (starting with the most expensive; try to get to the CEO/highest decision maker to field your request)
- Look for government funding and/or non-dilutive grants that are a fit for what you do
- Make sure you take the R&D tax credit which allows pre-revenue companies to deduct R&D expense against payroll taxes that would otherwise be due
- Look for customers who might pre-pay for multi-year contracts in exchange for a discount
- Consider receivables financing if you have significant receivables (but be careful on the extent, the cost and the quality of partner you work with)
- Subscription costs like cloud services often sneak up on you, so once a quarter have a hack-a-thon to find creative solutions to lower costs
Operations
- Focus on your biggest milestones (and resist the inessential and non-critical investments)
- Stagger some of your large projects so they don’t all happen at once to stretch your human resources
- Take a critical look at your marketing budget; consider doing marketing experiments sequentially rather than multiple ones in parallel. Also consider channels; if paid marketing isn’t working super efficiently, perhaps organic will provide as much bang for much less buck
Physical Plant
- Go completely remote (no lease means no office overhead)
- Turn the heat down a bit and tell people to wear a sweater
- For science-focused organizations, leverage existing labs / experts instead of building all elements of commercialization in house
Creative Ways to Manage the Risk of Burnout For Yourself and Your Team
Top ideas from our CEOs included:
Leadership & Working with Your Team
- Make sure your company has a clear purpose/mission (remind people what they are fighting for)
- Truly listen to your people and be present – they are going through this with you and, while it only takes a moment, it helps enormously for them to feel seen and heard
- Surround yourself with the right people – no one looks forward to layoffs, but they can be a change catalyst allowing you to build a team consisting of only the best and best fitted for their roles
Breaks
- Be flexible with vacation, sick time, and family time to make sure everyone feels supported
- Have a vacation calendar so your team members aren’t caught short-handed and maxed out. Take advantage of seasonality in your business to give people an extra break
- Step away from your desk and your computer and get a quick dose of fresh air
- Manage stress with regular exercise
- Take the time to unplug and separate yourself from your company (e.g. time in nature)
- Institute company-wide recharge days (instead of unlimited vacation that people don’t often take); examples might include
- All summer Fridays off
- Select mandatory days off
- Where business allows, encourage employees to take a “European” approach to holidays and take an extended chunk of time to regain perspective rather than just a few long weekends
Seek Sources of Support and Help With Professional Development
- Help your people with career development, no matter what their career stage is
- Get leadership training for yourself and offer it to the leaders on your team
- Consider internal (and therefore free) mentorship programs to help your team develop through P2P support
- Consider working with an executive coach
- Meetings 1:1 with CEO, Executive Team
- Group sessions with the broader team
- If coaching is too expensive, join a formal or informal CEO forum to find advice and support from peers dealing with the same issues
- Include your family, spouse, partner, and friends in the ups and downs of your entrepreneurial journey
Plan Special Events
- Keep people connected with fun zoom happy hours / “wine downs”
- Organize virtual game nights to allow people to bond and blow off steam
- For virtual companies, get together quarterly to reinforce in-person connections
- Rent or stay at an offsite location for a few days as a team (example agenda: day 1: focus on connection/hanging out; day 2: set time for dreaming and visioning exercises)
Sure, none of these ideas is a silver bullet that will magically make difficult times easy, but virtually any company can find a few suggestions on this list that might make a measurable difference. Talk to your CEOs, hear them out, tell them they are not going through this alone and offer to share some of these ideas to help them cope. And when you are done, be sure to remind them that some of the best companies and cultures are fostered in difficult times by leaders who had the courage to stay the course.
