Andrew Rubin, CEO and Co-Founder of Illumio
In the past few months, news of layoffs and economic uncertainty has been everywhere. Startups have cut over 110,000 jobs year-to-date. In June, inflation hit a four-decade high.
As the world continues to feel the effects of the pandemic and as layoffs continue to grow, it's easy to feel anxious about an economic downturn, or even a recession. As a later-stage startup co-founder, this isn’t the first time I’ve seen these economic red flags, and it certainly won’t be the last. But for leaders working to reinforce their business resilience, assuage workplace uncertainty, and make sense of seismic shifts in the economy, here’s what you can do.
Start with the facts
The best thing you can do is run the business on the business. Let the numbers be your guide (as a rule of thumb, but particularly in times of uncertainty). The more uncertain things get, the more necessary it is to ensure you start with the facts. Get as much data on the table as you can and ask questions – examine your growth rate, annual recurring revenue (ARR), cash flow, employee growth and retention, and any other metrics that influence your business. Read the data thoroughly and be honest with yourself about what it says so you can make the appropriate decisions. You’ll never have as much data as you want, but your numbers are a constant and an undeniable truth in uncertain times.
Additionally, keep in mind that what’s happening across the market doesn’t necessarily impact your business—but you still must prepare for any possibility. Waves of layoffs are always disturbing news, but they are also opportunities to hire strong team members when you are not as deeply impacted. And even on its most sound days, the stock market is prone to ebb and flow.
Running the business on the business means asking hard questions (e.g., how much runway do you have in the bank?) and making decisions based on the numbers, not on market fluctuations. Be transparent about those numbers with the board, investors, and most importantly your team. And if the numbers and results look good, and customers keep buying, renewing, and expanding, then keep investing, growing, and hiring. Don’t let uncertainty slow you down. Let the numbers be your guide and find the opportunities that often present themselves in uncertain times.
The best companies are built in the harshest markets
You may be familiar with the saying, “What doesn’t kill you makes you stronger.” There’s a similar saying among startups and early-stage tech companies: “The best companies are built in the toughest markets.”
This is true for two reasons: the first is discipline. Just because you have the money sitting in the bank doesn't mean you have to spend it. My philosophy, in good and bad markets, has always been there should be a business case made for every investment. Startups that tend to raise money and burn through it quickly face a challenging road ahead. Resilience is predicated on discipline. It’s hard to fail in strong economic times, but it’s even harder to succeed in downturns if you don’t plan and execute accordingly.
The second reason comes down to market competition. There's a reason why the average lifespan for a tech startup is seven years. Very few (3%) see the light of day after 10 years. Your competitors that don’t have cash in the bank now (that is to say, don’t have years of runway), are in for a very difficult road ahead in this new market environment, even if they have a solid product offering. This market will undoubtedly winnow out weak businesses.
But even companies that positioned themselves well heading into this downturn will have to be careful, disciplined, and deliberate going forward. The hard work is just beginning. I see many leaders, who have built strong businesses through responsible practices, get swept up in the see-sawing fluctuations of the market. It’s our job to keep a close eye on market conditions and make rational adjustments quickly and accordingly. However, the balancing act is the hard part; it requires being deliberate, not making knee-jerk decisions and yet still taking advantage of the opportunities as they present themselves.
Communicate your value to customers
As a startup, it's a lot of fun when things are up and to the right – and everything gets marked up in a matter of months. For now, that time is over. It ended sometime early this year after over a decade of free-flowing capital and incredible valuations, and now we’re seeing stories of layoffs and hiring freezes as the new norm. The leaders who quickly accept and embrace the new reality will make better decisions and be much better poised to find opportunities in this new environment.
Your customers might be feeling the effects of a cooling economy too and are going to evaluate every purchase more closely to run their business more responsibly. As many companies tighten purse strings, it is your job to clearly articulate the economic value you deliver to each customer and prospect. Help your customers see you not just as another line item, but as an important business partner helping them achieve their mission.
In the months ahead and even beyond this economic cycle, my advice for startup leaders is this: let the facts guide you and don’t be afraid to make difficult decisions quickly when necessary. Your responsibility is to lean on and share the facts with your team and illustrate your economic value to customers clearly. Then, boldly run the business on the business. That is the way you build an economically resilient, responsible business.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.