The recent turbulence in public and private markets is creating a lot of noise in various news outlets. From horror stories and negative sentiment on company resizing (or even shutting down altogether), to VCs freezing investments and pulling term sheets, to industry veterans calling parallels between now and the infamous 2000s tech boom & bust, the bearish sentiment looms large.
While this can be scary to many participants in the ecosystem, we believe it is also a test to investors’ behavior, especially when times get rough. So, we’ve decided to put our heads together and strategize on how we can best support our start-ups by asking ourselves two key questions:
1) What do our start-ups need to best navigate the storm?
2) What can we do to help?
Indeed, there is no one-size-fits-all answer to any of these questions. Nonetheless, we did do our best to develop a list of guiding principles that will help our companies with their decision-making process in the current macro environment. We are happy to share them here in the hope that it’s helpful to others.
First, we are sympathetic toward our founders and the stressful state in which they are operating. We encourage them to spend time attending to their mental health.
This is a time for leadership
We encourage our founders to over-communicate, be incredibly transparent and sincere, and share their strategy of how the team will navigate these volatile times.
A company is either growing or dying, and therefore the goal should never be to just survive. We encourage our founders to identify which areas they should invest in and focus on, and which are of less importance or impact.
That could mean focusing on existing products vs researching new ones, expanding certain teams vs reducing others, etc.
Cutting costs while still investing in growth is a difficult balancing act, but we see partnerships (such as co-sponsoring events) as a creative low-cost answer to start-ups’ marketing needs.
Crises present various opportunities that start-ups can (and should) capitalize on, such as standing out in their marketing efforts (in times where many start-ups are cutting back growth expenses), or adding top-talent to their teams (while many companies are resizing and laying off employees).
Delaying making a decision is equivalent to not taking a decision at all, and growing start-ups require the ability to adjust quickly. This is especially true during high-pressure and volatile periods in which high-stake decisions (such as firing employees or delaying a launch) are intensified.
We therefore encourage our founders to act quickly and decisively to best position the company against a potentially challenging period while it’s still possible.
Firing employees in response to a business downturn is very different from firing someone for poor performance.
Lead with empathy
We encourage our founders to lead with empathy and try to be as understanding and accommodating as possible when letting go employees during the current downturn.
This could mean extending the paid period to a few months or even taking a salary cut as an act of solidarity.
Ultimately, we believe that those who are trying to figure out “Is it time to freak out yet?” are asking themselves the wrong question. Instead, investors and start-ups alike should be asking themselves how they can best leverage the current market conditions for their own advantage and to continue to grow.
And while we can’t control or predict the macroeconomic environment, we try to offer our start-ups partnership and advice.
The writer is a member of Ibex’s VC team.