One of Silicon Valley’s most powerful venture capital firms, Sequoia, issued a note to its founders and CEOs on how to deal with the current coronavirus pandemic and the challenges that have come along with it.
The note describes Covid-19 as the “Blackswan event of 2020”, and begins by saying: “We suggest you question every assumption about your business.
The following are the key takeaway points from the note:
1. CASH RUNWAY
Do you really have as much runway as you think? Could you withstand a few poor quarters if the economy sputters? Have you made contingency plans? Where could you trim expenses without fundamentally hurting the business? Ask these questions now to avoid potentially painful consequences in the future.
Private financings could soften significantly, as it did in 2001 and 2009. What would you do if fundraising on attractive terms proves difficult in 2020 and 2021? Could you turn a challenging situation into an opportunity to set yourself up for enduring success? Many of the most iconic companies were forged and shaped during difficult times. We partnered with Cisco shortly after Black Monday in 1987. Google and PayPal soldiered through the aftermath of the dot-com bust. More recently, Airbnb, Square, and Stripe were founded in the midst of the Global Financial Crisis. Constraints focus the mind and provide fertile ground for creativity.
3. SALES FORECASTS
Even if you don’t see any direct or immediate exposure for your company, anticipate that your customers may revise their spending habits. Deals that seemed certain may not close. The key is to not be caught flat-footed.
With softening sales, you might find that your customer lifetime values have declined, in turn suggesting the need to reign in customer acquisition spending to maintain consistent returns on marketing spending. With greater economic and fundraising uncertainty, you might even want to consider raising the bar on ROI for marketing spend.
Given all of the above stress points on your finances, this might be a time to evaluate critically whether you can do more with less and raise productivity.
6. CAPITAL SPENDING
Until you have charted a course to financial independence, examine whether your capital spending plans are sensible in a more uncertain environment.
In these uncertain times, perhaps there is no reason to change plans and, for all you know, changing circumstances may even present new opportunities to accelerate your business.