The World Isn’t Ending, But Your Job Just Got a Lot Harder

Your number job as a CEO of a start-up is simple. Never run out of money. Your already hard job just got harder. Uncertainty is high, but I can tell you with confidence that we are in a reset period (how long it is going to last, how much slower capital will be deployed, and how far valuations are going to fall I can’t tell, I can just tell you all those things are moving against you right now.)

The goalposts have been moved way down the field. Your job is to stay on the field through this and the best way to do this is to do as much as possible to control your own destiny. Control here means being as capital efficient as possible and changing your need for external capital (amount, timing, etc). There is a silver lining if you get through this.

This is not meant to be an exhaustive list, but a few things I would encourage you to focus on:

• Track burn/runway as your most important KPI. Review this weekly (at least) with your leadership team. Make sure you have cost controls in place and act sooner rather than later.  The longer you wait to right-size burn the worse situation you will be in.
• Relentlessly focus on CaC and especially the payback period. An amazing 3-year LTV doesn’t matter here if your payback is too long and you run out of money waiting for year 2+.  Capital intense business will be the first to die.
• Understand how your costs break down between fixed overhead (usually people) and variable costs.  Be hypercritical of adding fixed costs right now. Do you need that hire right now? Can you address the need in a way that gives you more flexibility?
• Tie incremental spend to specific revenue milestones, if you are behind on plan DO NOT ADD incremental cost.  Growth should unlock hires, not tied to a plan made six months ago in a different world.
• Reset your valuation expectations and capital needs for growth. The valuation you aimed for six months ago isn’t possible on the same revenue. You’ll need more revenue and less capital to get there. It might not feel fair, but its reality.
• Cast a wide net, run an efficient process and start with reasonable valuation expectations when you do go to raise. Plan on talking to 2x as many firms and taking 2x as long.  Once you get a term sheet it’s always possible to walk round size and valuation up, but it’s almost always impossible to go back with a lower ask.

Now the good news for those that survive:

We are all playing for $1B+ outcomes here, an extra 6 to 12 months of time to exit or a few extra pts of dilution won’t matter as long as you survive.  What will matter is going out of business.

And those that survive/grow during this will find the landscape positively changed for them, there will be:

• Less competition for customers
• Less competition for capital
• Less competition for talent

AND you’ll have a more capital-efficient business than when you started.

We know this is hard and Adam and I are available at any point to sit down with teams and think through operating plans and fundraising plans given the changing environment. Leverage us as needed, we are here to make your hard job hopefully a little bit easier.