A couple of weeks ago every startup was still talking about launching new products, hiring new employees or closing big financing rounds. Now, these plans have changed entirely. Nearly all startups are affected by declining sales and rising uncertainty - to make things short: It’s all about survival now.
This is a quick insight into our view of things during this crisis.
Most startups are experiencing an economic crisis for the first time. Everyone knows the stories from people who encountered the financial crisis back in 2008. But now, we’re in it ourselves and those “hard times” everyone was talking about are about to hit us even harder. Managing a crisis is hard, especially if it’s your first one and it has the magnitude of the current one.
It’s time to shift our mindset - it’s not about finding the best option anymore, it’s about finding the least bad one. As Felix Eyser puts it: “probably none of us had a ‘global pandemic’ section in our 2020 financial planning sheets.”
Even though we’re still at the beginning stages of this crisis, we almost certainly know that the human and societal impact of the COVID-19 crisis will be extreme in every measure. For startups, this is a particularly difficult time. In past recessions of 1982, 2000 and 2008, startup fundings dried up and young companies had severe problems to remain solvent.
Our product is meant to be used outdoors and in groups. This is not something we can or want to endorse at the moment. People have other concerns than purchasing new camera equipment, especially with the limited allowed usage right now. As a result, our revenue dropped by 90% within just a matter of days.
Facing dramatically declining sales makes every CEO jumpy. The first thing we did is to dump our 2020 financial plans and start from scratch. We came up with different scenarios on how the pandemic could potentially develop and how long it would take until people would be allowed to go out to finally throw their GoPros again. As a small company our fixed costs aren’t too high but neither are our savings. After running our numbers we were baffled - only 6 months of extended lifetime with no income.
In short, we have a runway of half a year to cut even more costs, find governmental aid programs and alternative financing sources until things will get very uncomfortable. These calculations were followed by a long conversation with our investor, who ensured that he will continue to support us, no matter what it takes. In such challenging times we are more grateful than ever to have a strong partner by our side. Just as most fellow founders we’re trying to find our path in these uncertain times. Here are a few points which we consider as a guideline to maintain a rough sense of direction:
This one seems pretty obvious. If you don’t survive, there’s no upside and all the following strategies below are going to be useless. It’s time to put aside the wonderful plans to become a huge company with world-changing new products. All that matters for now is survival.
As mentioned before, none of us know what's going to happen in the next few weeks or months down the road. The news keep changing on a daily basis and it’s difficult if not impossible to make any reliable predictions. This is not the time to be an incautious pioneer. On the contrary, it’s best to be careful and try to protect every workplace. For now, you better overreact to changing circumstances than to regret and adopt decisions in hindsight.
Always overcommunicate. Your team needs to stay in touch with each other, way beyond what’s necessary to get the job done. Exchanging questions, feedback and personal views on the current situation often lead to new ideas and solutions. Not only internal but also external communication should be an absolute focus. Let your customers and business partners know how you act in this situation. If, for instance, deliveries are delayed, let them know ASAP so they can plan accordingly.
“The best work gets done when minds melt when dedicated people let loose on the productive playground of collaboration.”
- Steli Efti
Make sure your employees stay safe to further benefit from their labor force. In order to do so, create a safe work environment. While a lot of countries implement social distancing policies, the safest and most reasonable way is to work from home. For us, remote work isn’t anything new. As an internationally spread team across the globe, we work fully remotely. We’re currently writing another blog post specifically about our the best practices and tools for remote work, stay tuned.
Startups generally don’t die from a lack of ideas. They die because they run out of cash. So put in place a plan to conserve liquidity. Be aggressive in this plan. Early action will be much more impactful than later action. Every startup's new religion should be “liquidity” and the god is actual cash. Make sure to pull it in from all sources and don’t count on projects or contracts in your pipeline to close. Most big companies, government clients and especially small business will also go into survival mode.
For us, in this situation, there’s no way to control the income so we focus on cost-cutting and cash collection. In order to do so, we started by cutting marketing expenses. Since we can’t play our “marketing game” properly right now, we don’t see much value in spending money on social media ads and paying influencers. We also have high hopes for governmental aid programs to provide us with liquidity. In times like this, we’re very thankful to be working in Germany, where our government shows good intentions of helping startups financially, something that can’t be taken for granted.
As a lot of other people and organizations do, we also try to look at the potential upsides this crisis entails. We all know that the former crisis has spawned ideas that led to nowadays successful companies. Necessity is the mother of innovation and creativity - let’s hope for this to come around again.
A last request on our part, remember that we’re all in this together. This isn’t the right time to be egocentric and profit-greedy. Support small and local businesses and help each other to overcome this.