- Tech investors David Cohen and Brad Fed hosted an hour-long roundtable discussion on Tuesday with three veteran tech executives who have founded and sold companies for over 20 years.
- Scott Dorsey, Bernee Strom and Paul Berberian all shared their own experiences of leading a company during the past two economic downturns, steering a company through the 9/11 crisis, and what they wish they had done to better guide their companies.
- Here are the 5 pieces of advice that they for company leaders navigating their startups through a looming coronavirus-driven economic downturn.
- Visit Business Insider's homepage for more stories.
An economic recession may be brewing as the country scrambles to send employees home amid the coronavirus pandemic — and the tech industry is already preparing for how to survive the upcoming turmoil.
Colorado-based tech investors David Cohen and Brad Feld hosted an hour-long roundtable discussion on Wednesday with three veteran tech executives who have founded and sold companies for over 20 years: Scott Dorsey, Bernee Strom and Paul Berberian.
As the group noted, a coronavirus-driven economic downturn today would be extremely different from most other financially driven recessions like that in 2008.
For one thing, "the speed of change has been much faster than the other ones," Strom noted. That's a situation that will present specific challenges to startups looking to quickly adapt to a fast-changing economic landscape.
Another aspect to consider is the countrywide shock and trauma accompanying the market turmoil right now. Berberian compared the current economic landscape to the market response to 9/11, an instant moment "where everything in your life changed, you know, and the world changed instantly." Navigating challenges at that time was like handling a "tidal wave," he said.
But on the flipside, as Foundry Capital partner Brad Feld noted, the rapidity in which the situation has escalated has also meant that several investors still have the money to continue funding startups. Ways of life, like going remote, are changing. That means keeping your eyes open for emerging opportunities is of vital importance.
You can watch the full discussion here
Here are the five pieces of advice that the group has for company leaders navigating a looming coronavirus-driven economic downturn:
1. Shore up your balance sheets
Bernee Strom remembers exactly where she was during 9/11 - a board meeting in Boston, about to have a group of banks refinance the debt of her company Polaroid. The very next day, the banks pulled out of refinancing the deal, she said, forcing the company to file for Chapter 11 bankruptcy.
The following scramble to hunt up private equity firms has left her with one very urgent piece of advice for startups today: always have cash at hand.
"You've got to harbor cash, you have to get your credit lines in place, in these crises," she said. "Cash is queen."
Scott Dorsey, who eventually sold his company Exact Target to Salesforce, noted that his company was well-prepared to handle the 2008 recession precisely because it had cash on hand. This even allowed the company to avoid layoffs, he said.
"We felt that we had a financially sound enough business and that we're adding a lot of value into the marketplace," Dorsey explained. "We would be able to kind of weather the storm better than most."
2. Double down on existing customers
Even though Scott Dorsey considered his company "well-prepared" for the economic downturn of 2008 and 2009, he said the company came under a lot of pressure as it tackled customers negotiating the ability to terminate their contracts with his company at their own convenience, or existing customers renegotiating their contracts to do the same thing.
His one big piece of advice to startup founders? Redouble efforts to build relationships with existing customers.
"We really doubled down on our existing customers," Dorsey said. "We shifted organizational resources to caring for customers, making sure they were healthy and making sure they are growing and really trying to deepen those relationships.
3. Be sure to keep communicating
Brad Feld of the Foundry Group tackled advice from a slightly different perspective, as one of the two investors in the group. His big piece of advice for CEOs right now was to be mindful of their leadership, given the massive uncertainty surrounding the coronavirus outbreak.
"I think that it's important to recognize, especially as a leader, that everyone around you is experiencing a crisis," Feld said. "What you can do as a leader is lower any vector of ambiguity with the people that you lead by communicating — and communicating regularly."
Feld noted that his own firm Foundry had tackled the shift into the work-from-home world by keeping an "open line for everybody," allowing anyone to get on the line and chat. He said that the VC firm had the same thing for all the CEOs in their portfolio for an hour in the evenings.
This provoked a chorus of agreement from the group.
David Cohen of the seed accelerator Techstars, stressed that communication was his "biggest piece of advice and entrepreneurs," not just to employees but to all constituents - customers, employees and investors.
And Strom added that communicating with employees in the tech industry was especially important. "Tech is unusual because people are very happy to take lower salaries or no cash compensation in some respects if they really...you find that they really believe in the vision and the product," Strom explained. "Your employees become very loyal and very committed to get the thing done."
4. Navigating cost-cutting and layoffs
How to handle layoffs? While most startup leaders strive to avoid layoffs while keeping the company afloat, it is sometimes necessary, pushing startup founders to navigate a delicate task.
"I think you have to be very serious when you talk to your leadership team about it, because you don't want people to get into the mindset that this is ever easy or you're not going to have a dramatic impact on someone's life, especially in a time of great uncertainty like that," Berberian said. "This is a very big decision, but you also have to, you know, remind them that the business needs to survive."
Feld added that layoffs weren't the only tool that companies had, in order to cut costs.
"Recognize that there's multiple tools here," he said, listing salary reductions and a furlough, or a leave of absence, as possible alternative solutions. "There's different legal implications around that, but you know, it's another way of navigating through it."
But he noted that both federal and state regulatory activity around employment and layoffs was currently buzzing, and told startup founders to keep an eye out for upcoming bills.
5. Stay alert for any new emerging opportunities
As the coronavirus pandemic has prompted companies to cancel travel plans and send workers home, the video-conferencing company Zoom has been hailed for rising to the occasion. Its example prompted the five veterans to remind listeners that there's still a silver lining for entrepreneurs right now.
Because the coronavirus outbreak has so rapidly escalated across the country, there is still "an enormous amount of available cash" that private equity firms and VCs are willing to spend. That could create unexpected opportunities to fund new ideas, Feld said. "The appetite for [investing] does not necessarily correspond to the thing that's happening."
"Look for the opportunities and in your business that could potentially potentially take advantage of the crisis and provide a solution that will really empower people's lives," Berberian advised. "The ability to show your ability to help the world with your product and services is incredibly rewarding for the team to get them back onto mission."
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