March has not been an easy month — to say that is an understatement.
I have had several close friends become ill though thankfully all, except one, have fully recovered. What is appalling is the rhetoric of political leaders that debate the trade-off between the well-being of its citizens and the broader economy.
When harsh realities slap you in the face, the best medicine is to smile and laugh, stay positive and focused, keep moving forward, and try to enjoy the rollercoaster ride.
Earlier this week, I published State of European Venture and B2B Software which shared perspectives of founders, operators and investors in Europe and the US. Since then, I have also spoken with LPs, bankers, advisors, healthcare professionals, and academics to gain a broader perspective.
The overall sentiment continues to be very mixed. Many are hopeful that the worst will be over by late May, while an overwhelming minority anticipate the status quo will persist until September and beyond. Investors like Temasek, Bessemer, and Social Capital are advising their portfolio companies to prepare for the worst by having 18 to 36 months of cash runway.
If the current sentiment continues, sub-scale B2B software startups and scaleups will need to rely on existing customers and investors for survival in 2020. Luckily, B2B software businesses are more resilient in comparison to companies that rely on consumer spending, manufacturing, or supply chains.
This article summarizes operational initiatives that many B2B software businesses have taken in recent weeks. It is a more comprehensive list than How to Prepare Your B2B Software Startup for a Bumpy Ride published a few weeks ago.
Cut costs that are not measurable & attributable. This includes marketing, entertainment, and talent. Freeze hiring and let go of under-performers.
Negotiate with existing vendors. List vendors, by €/£/$ spend amount. The key ones are rent and tools & systems (e.g. LeadGen, CRM, payroll, bookkeeping). Speak to their competitors and request for better terms. Offer to sign a longer contract in exchange for lower cash payments in 2020 and 2021. Build in more flexibility, if possible.
Maximize cash received from customers, sooner. Send customer invoices on time. Make sure customers pay on time. Turn loyal customers from monthly or quarterly to annual or multi-year payments (and offer discounts). Move up renewals and high prospects — a number of startups I spoke with mentioned they were able to tap into the “COVID-19 Emergency Budget”. Incentivize Sales to close annual or multi-year contracts with more upfront cash payment. Prioritize customer logos and case studies, as brand matters more now.
Reduce compensation. Keep talent by reducing work time & salaries by X%, more than X% for co-founders. Make up for the difference by rewarding with equity.
Find the full article on our private blog
Practical frameworks, insights, & tips for European B2B software startups and scaleups on financial design, predictable growth, global go-to market success, venture & private equity funding, shareholder management, capital markets, M&A and exit strategy.
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