What Startups Should Do While Sheltering-in-Place
A quantitative assessment of market conditions.
A quantitative assessment of market conditions.
If you run a startup these days, there are some truisms you keep hearing — “the party’s over”, “conserve cash”, “extend the runway” and so forth. Most investors are basically saying “Expect less money from us and our colleagues”, and “we’re in a recession, so things will slow down”.
James Reynolds’ “Waiting It Out”
While these statements are obviously true on the macro level, your day-to-day is on the micro level:
- Do I lay people off? How many? Which part of the organization? Engineering? Sales? Business Development?
- Do I try to engage my customers or are they all sheltering in place with pillows over their heads?
- Do I stay the course? Do I change my assumptions about what products or services my market needs now or post-COVID?
“The Market” are your customers, not your investors.
A month ago, when the economy was starting to “shut down”, my assumption was that we will see a broad-based slowing down in activity. B2C companies seeing customer demand crashing, B2B companies who can’t get their customers to answer their phones, basically whole teams treading water before the hammer comes down.
This was also the knee-jerk reaction of some of the companies I was personally engaged with, inspired in many cases by their investors’ doom-and-gloom letters. And as we switched the INTRO CEO Club meetings to a weekly video meeting format last month, I was expecting it to become mostly a support group for semi-unemployed CEOs going through the trials and tribulations of shedding business activity.
But instead, every week many members were reporting more, rather than less, activity, even as their teams switched to working from home. Is this just inertia, I wondered, Wile E. Coyote running on air, long off the cliff?
To better understand what is happening and draw useful conclusions, I’ve run a small survey about business activity and business productivity. It is by no means highly scientific — not from the perspective of survey design, nor from the perspective of the sample size (44 respondents) and biases. However, as Hubbard explains, there is much to learn even from small samples, as long as you know what the limits of your tools are.
I targeted three separate groups:
- INTRO CEO Club members — CEOs of Israeli-led startups in Silicon Valley, mostly early-stage.
- INTRO Product Manager club members — Product Managers from Silicon Valley companies, skew towards large tech companies, from Google to Salesforce.
- Broader audience — Tech, mostly Silicon Valley, and usually in business development / sales etc.
The questions I was trying to answer were, roughly:
- Is there a reason for our efforts? Is there a market out there? In other words — measuring demand and customer interest in companies’ products.
- Are we effective? Do our efforts matter despite working-from-home and the background noise of the never-ending bad news cycle?
Do you cut 50%, 20% or 0%? Do you hibernate or accelerate?
Is There A Market Out There?
The survey question was “What is the level of customer activity you are experiencing now, vis-a-vis 2 months ago?”. Answers tried to capture both the change in actual activity (e.g. Sales), as well as customer interest, e.g. active customer conversations (mostly in B2B businesses).
The overall results indicate that while short-term demand has shrunk for most products, in almost all cases the customers are still there, engaging with companies even as they are delaying purchasing decisions.
Looking at the data reported specifically by startup CEOs (skew B2B enterprise) shows a starker picture but with a similar conclusion:
While sales are dropping or being deferred, 80% of start-ups are still actively engaged with their customers. Even if purchasing is on a freeze, the customers are still doing their work — studying the opportunities, evaluating vendors, planning projects.
Many of these plans may not see the light of day. But who can tell which ones?
Your customers are still out there, ignore them at your peril.
Another change in market demand is felt by some companies whose customers’ needs have changed. From companies in the healthcare space who are seeing accelerated demand for particular products (e.g. telemedicine), to companies whose customers need help in dealing with the side-effects of COVID-19.
Roughly 30% of startup CEOs reporting quickly changing products significantly, building new ones, or even switching markets. I’ve collected examples of startups re-focusing / pivoting to make an opportunity of the COVID-19 disaster in this open-source list.
For some, this is the time to shine.
Are We Effective Working From Home?
At this point, the drop in both personal productivity (“Am I productive working from home?”) as well as organization-wide productivity (“Are we delivering as an organization?”) is perceived as meaningful but not drastic. On average respondents are actually working more from home, and many believe they personally are “more productive” per hour worked.
At the organizational level, or the “aggregate throughput”, the results are not as good, but not drastically bad either:
The differences between different respondent groups are insignificant, both with regards to the levels of productivity, as well as with regards to the underlying causes — from market changes through work-from-home to availability of financing. The lesson for B2B startups being — just like you are trying to do your best these days, so are your customers.
The challenges are similar in most cases, but the desire to be productive is just as strong.
Your people need a purpose, as do your customers’
Conclusions For Startup CEOs
Obviously, there is not a one-size-fits-all decision here. Averages are averages. If you’re in the travel industry you’re probably in the trouble industry. If you’re in healthcare you may emerge healthiest from 2020.
How much runway you have also depends on your cash level and the fiscal and mental health of your existing investors. But by-and-large, I draw the following conclusions:
- For most companies, there is still a market out there, with customers that expect to be engaged. If you fall off the map, it will detract from your ability to do business with them — now and in the future.
- Your employees as well as your customers’ are making efforts to work through this and be productive. You can make progress even these days.
The last survey question regarded when “business will be back to normal”. Frankly, I don’t think anyone is qualified to answer this question, and it says more about the collective psyche than what the future holds.
But if you believe in the wisdom of the crowd, 70% of respondents believe that the answer is the 2nd half of this year. If that is true, most startups have the choice between attempting to stay relevant and ready for the bounce-back, or atrophying while waiting for it.
Even if your market slowed down significantly, if you are able to survive the next 9–12 months, your job is to be ready for that future market with the best products, customer / partner relationships and marketing assets possible.
Furthermore knowing when to shift gear and what exactly to offer requires keeping your finger on your market’s pulse.
The tide will turn. Some companies will be ready.
Shedding critical assets unnecessarily — talent, relationships, technology — is only sensible for those who believe this is the apocalypse rather than a recession. For the rest of us — triage, streamline, then keep engaging. Don’t throw the baby with the water.
Originally published on Medium