How to react to COVID-19 — an operating guide for startup founders

The world has become a series of experiments on government efficiency, containment strategies, and personal isolation. We can’t control how those experiments play out. But we can focus on what we can control: our companies.

How to react to COVID-19 — an operating guide for startup founders

This post was originally written by Veronika Riederle, CEO at Demodesk (YC, Kleiner Perkins). We re-worked it together and opened it up to founders and investors in our network for feedback. The result is a comprehensive guide for founders on how to react to COVID-19.

“I wish it need not have happened in my time," said Frodo.

"So do I," said Gandalf, "and so do all who live to see such times. But that is not for them to decide. All we have to decide is what to do with the time that is given us.”

― J.R.R. Tolkien, The Fellowship of the Ring

The world has become a series of experiments on government efficiency, containment strategies, and personal isolation. We can’t control how those experiments play out. But we can focus on what we can control: our companies.

Over the past few weeks, we’ve been talking to various investors and founders in Europe and the US across multiple stages. We’ve been reading and thinking a lot about potential implications and actions to take. We decided to share the advice we’ve compiled — hoping it’s helpful for others.

Note: if you are a founder, we’d love to know your thoughts. This as a living document so please do reach out if you have helpful things to add. If you are not, please share this with the founders in your network. You can send them this link.  

Impact on businesses, or the “new normal”

Obviously, business impact largely depends on the type of industry you’re operating in. Cloud software businesses are less affected than companies in the restaurant or travel space. But every business is impacted in some way — either directly or indirectly. Anticipate that your customers may revise their spending habits. Even if Demodesk is not in the hospitality space, we do have customers providing software for restaurants. Even if Salesforce is not a travel business, they have customers alike United Airlines or Uber.

In these difficult times, it’s important to help each other. Things have changed overnight. The faster we can adapt as a company, as a society and as an economy, the sooner we can return to a “new normal”.

Here's a quote from a previous Seedtable:

"There’s going to be a step change where something that would have taken a long time to happen is now going to happen much more quickly."

There will be some fundamental shifts that are likely to stay in a world post COVID-19 –e.g., less business travel, more distributed teams, a remote economy, and an accelerated migration of on-premise software to the cloud. And there will be a large number of cascading effects that we are not yet able to assess properly. Financial systems and governments will also need to adapt to the new normal.

The world won't be the same after COVID-19. The logical conclusion is that our companies won't be the same either.

Additional reads

Here are some resources I found extremely insightful in that context:

Summarizing advice received in 5 buckets:

1. Cash is king

If somehow possible, make sure you have 18 months of runway. If your burn is too high, think about measures you can take to bring it down. If anything, you want to ensure that you can continue operations as a company.

Make contingency plans

Adapt your business plan and financial model for different scenarios and define a set of actions to take, even if things get worse than expected. That helps you to prioritize and get peace of mind.

Illustration by Sequoia

If you are part of a drastically affected sector (i.e. travel), model a close-to-$0 revenue plan, at least for the next quarter or two.

Adjust hiring plans

Evaluate critically whether you can do more with less and raise productivity. A great way to raise productivity (particularly working remotely) is to drastically reduce the number of meetings. Consider the possibility of maintain successful changes in a post-COVID-19 world.

Put a temporary hiring freeze into place, at least for the next six weeks. Before you lay off team members, evaluate cutting back work hours and pay.

If you have non-key hiring processes in motion, the time to stop them is now. Job switching has become harder this year, and misleading a candidate isn't productive to anyone.

If you have staff whose workload fluctuates with demand (i.e. Customer Support), consider hourly cuts or furloughs instead of layoffs. This might be a benefitial arrangement for both parties.

If you go this route, a good idea might be to provide these employees with access to education material (Udemy, Masterclass) they can use in their extra time to better themselves.  

Quickly evaluate options to increase capital

Accelerate Fundraising if you have started the process. If you haven’t started the process yet, postpone it by 30 days. Reach out to your current investors to understand whether they would be able to provide you with additional capital. Focus on your company and your customers for the moment.

Make single cuts

If you need to bring down costs, do it in a single cut. Don’t cut it in phases, as multiple cuts are extremely demotivating.

Of course, there is also a series of other measures to take like debt financing, deferred compensation, short-time work (especially common in Germany), governmental aids, salary catchups…

  • Deferred compensation.
  • Short-time work.
  • Reduce work hours/days.
  • Furloughs (if applicable).

Finally, look closely into governmental aids. France just released a $4 billion startup relief package. Sifted put together a full list of support measures for startups here.

2. Help your customers

It’s important to run lean and ensure the survival of your company. But quoting Shaan Hathiramani (he is Veronika's friend), founder of Flockjay:

“If we retreat into full slash-and-burn without a new revenue growth plan, it’s a slow death by a thousand cuts. We’re neglecting what makes our businesses great in the first place.”

Help existing customers

Think about measures you can take on your end to help your customers master this challenging situation. Get on the phone with them, listen carefully and try to help. If there is one thing you want to avoid, it’s existing customers going out of business or churning.

Adjust marketing and sales (or be emphatic)

When reaching out to prospects, try to understand how you can help them. Shift away from the mindset of “selling”, show empathy and adjust your communication strategy. Now it’s more important than ever to thoroughly understand your prospects’ challenges and how you can provide value. And value means revenue.

  • Revise goals and ad spend. Q1 is already dead, and Q2 is stumbling its way to the grave.
  • Adjust, modify or pause ad campaigns. Bid costs might significantly go down in some markets (due to less demand) but buyers might not be in the right mindset.
  • Adjust drip copy and scripts. Switch from selling to a high EQ conversation. Don’t pressure or you'll risk damaging relationships. In short, don’t be this guy.
  • If needed, add a mention to your COVID-19 efforts on your website. A top bar is enough.

The key in this situation is not to appear tone-deaf. But don't do this just because it's good marketing. Do it because it's the humane thing to do.

Look for new opportunities

The current situation likely has caused significant shifts in your industry. You might need to adapt your product and go-to-market strategy. If demand for your product is dissipating, look for options to pivot. There are increased demands for other things right now.

A good heuristic is assuming nothing will work. Think of this as an opportunity to start from scratch, to experiment or to cut down on your “marketing debt.” This is a great example from Supply, a DTC brand in the shaving space.

Finally, support your customers to the extent that it makes sense. Loom, a tool that is seeing increased usage due to the rise of people working from home, extended their free tier, lowered the price of their Pro tier and increased the recording limit for their free tier.

Be prepared, be paranoid but don't go all defence, think about how you can come out stronger as a team and company.

Don’t forget to think about the future

The good thing is that life will go on. Every crisis had an end at some point. But how does the “new normal” look like after COVID-19? There might be structural implications on your company and your business model. You might have to decrease your burn to survive long enough, but you also need to start hiring once the market takes up again. And there will be great talent available.

3. People first & Over-communicate

Your team and their safety and health should be your top priority — ahead of any business objective. Once you’ve taken care of your team, extend your empathy to customers, suppliers, contractors and your community. Be compassionate and thoughtful about the impact your decisions might have on the people that are involved.

In a situation of high uncertainty, over-communication is critical. It’s important to keep the team aligned, motivated and ensure everyone focuses on the right things. Be proactive in communicating implications for the company and make sure everyone has full transparency about the current situation. It also helps to stay calm and structured in front of the team in order to not expose them to unnecessary stress and uncertainty.

A good idea, particularly when you just moved to working remote, is to ramp up the good news. Celebrate eagerly that new deal someone just closed, or the new feature you just launched.  

Finally, make sure your team leads understand that these are not normal times, and it requires a change in management style even if the business is stable or growing.

4. Take care of yourself

The current situation is intense. And it will likely continue for a while. It’s important to set parameters for yourself as leader to make sure that you stay calm and have the ability to make the right decisions. Most common measures I heard are setting fixed working hours, meditating in the morning, regular workouts, sufficient sleep, putting aside time for yourself in addition to spending time with your family.

A personal word from Veronika:

I keep on telling myself: At any point in time, the only thing that you can do is give your best. Driving yourself crazy doesn't help. There are things that you can change and things you simply can't change. As a founder, you're constantly facing challenges. Obviously, the current situation is a somewhat bigger challenge. But the only potential way out is analyzing the current situation, evaluation options you have and then making an action plan. Another thing that helps is regularly speaking with other founders, investors and friends. They help me putting things in perspective.

5. Make WFH a success

The fact that everybody is working from home overnight does bring additional challenges along. Operating as fully remote team is new to most companies.

Share best practices for working from home

You can't close the office, open a Slack account and call it a day. Working remotely is a skill that takes practice to acquire, so you need to make sure your employees are set up for success.

A note from Gonz:

I've been working remotely my entire career. Here are some personal tips that can be helpful:

• Establish a morning routine. Try to wake up at your usual wake-up time, and use that extra "commute" time to grab breakfast, read a book, stretch or workout.
• Don't work in your pijamas. Getting dressed (jeans, a t-shirt) will help you get in the right mindset.
• Set up a comfortable, dedicated space to work from. The couch is far from ideal.
• Take short breaks. Get up, stretch, grab some water, and get back to work.  
•Leave your phone in another room. If your work requires uninterrupted blocks of time, your iPhone is your worst enemy. Leave it somewhere else.

Move office manager (if any) to Head of Remote Experience

If you happen to have an office manager, they can still take care of your team in a remote environment. According to LocalGlobe, this person should have two priorities.

Ensuring the effectiveness of the team in a remote environment, for example, their office set up, types of tooling, ability to facilitate discussions that would usually happen in a meeting room or over a water cooler.

Create and maintain the social connection, remote activities & games that a remote company does in order to maintain the types of connections that you'd have in an in person situation.

Non-obvious advice

  • Working from home with kids can be an additional challenge. Take this into account and ask your employees with children how you can help.
  • Establish Slack rules: Broadcast your status, structure Channels and use Threads (Slack can get messy quickly!)
  • Use tools like Loom to explain complex processes, walk people through a new feature or replicate a bug.
  • Make room for non-work related exchange: Meet for virtual lunch/coffee, establish a virtual happy hour or set up virtual gym classes and language courses. We also use Donut, a Slack app that randomly matches team members for virtual coffee meetings to foster cross-team communication.
  • Embrace team members and celebrate success: Demodesk uses the Slack app HeyTaco! to foster this.

Some additional resources

Luckily, there are a lot of companies we can learn from when it comes to remote working.

An ending note

Most of us have at least one big and unpleasant decision that we know we need to make. We've know for a while, but good times obscure that. An existential crisis like the one we are going after is the perfect environment for making them.

Great CEOs will make those decisions now and come out stronger. The faster we adapt to the new normal the less severe the consequences for economy and society. We are convinced that together, we’ll be able to find solutions.

Finally, we sincerely hope this is helpful for some of you. If you have great resources to share or recommendations for other founders, please let us know and we’ll add them to the blog post.

Thanks to Matt Clifford, Brett Bivens and other founders and investors for collaborating and reading drafts this.