This post was written by James Wilson for our partners at Silicon Valley Bank.
It’s suddenly become a challenging time for startup founders. Today’s economic conditions have shifted their focus from planning and executing growth strategies to survival strategies.
Khaled Hussein knows a thing or two about tech startups and how to deal with uncertain times. A serial entrepreneur and investor, Khaled founded his first tech company, a development house, back in 2004 in his native Egypt. And in 2011, he co-founded Tilt, which was acquired by Airbnb in 2017.
Today, he is the CEO of Betterleap (which he also co-founded), a company focused on streamlining the hiring process for recruiters and hiring managers.
“Respond, don’t react.”
“The market is changing daily, and this volatility can lead to instability, which often leads to taking a reactive stance,” Khaled says. “My advice is to avoid this. Respond, don’t react.”
In our conversation, Khaled outlined five key tips that he himself has followed to best respond to turbulent times. “If my experience as a founder has taught me anything, it’s that you need to take a step back and take in the whole picture,” he says.
#1. Be informed
To respond effectively, you’ll want to be informed – well informed.
The quality of any response is often times directly related to the amount of information you have about the position your company is in today. “It’s surprising to me how many founders do not have a firm grasp on this,” Khaled says, “and it’s so critical.”
Do you have a solid understanding of your company’s financial position? Your target market changes? How is your product performing in that market? What feedback are you getting from early adopters and customers? What are the risks? What are the opportunities? Founders should ask themselves these types of questions to be better informed.
“The reality is investors want to be informed — good, bad, or ugly.”
Once you’re informed, you need to communicate with your stakeholders.
“A lot of founders fall into the trap of wanting to deliver only good news to their investors,” Khaled says. “The reality is investors want to be informed — good, bad, or ugly.”
It’s important to accept that down cycles do occur. Being open to investors about your challenges can be an effective way of building even greater trust. “Be vulnerable to your investors,” says Khaled. “If they don’t know what’s going on, they won’t be able to help you.”
It’s equally important to be honest and transparent with your employees. If there’s bad news to deliver, don’t wait – do it right away. “Many employees join a company because they want to be part of a bigger mission, and because they believe in the founder’s vision, resilience, and dedication,” Khaled says. “This is the time to show the kind of leader you are.”
#3. Be creative
Responding effectively to a market downturn definitely doesn’t mean following the crowd. The inclination may be to zig with everyone else in the industry, when the better direction for you is to zag.
Compensation is a good example. Employees who joined startups in the last six or nine months did so at the companies’ peak evaluations – but now the market is correcting. Options could be worth considerably less, so now is the time to think through a retention strategy, especially for top talent.
“Consider reviewing compensation packages every six months, or even every quarter,” Khaled says. “Don’t just copy what everyone else seems to be doing in the market.”
#4. Be methodical
Responding to a market downturn also means taking a measured, considered approach to your business strategy. There’s a tendency to look at the results of the last two quarters in a downturn, then make critical decisions from there. You should consider avoiding this. Maybe a hiring freeze or making staff cuts aren’t the best decisions for the future health of your company.
“Funny thing is, when somebody is doing layoffs, there’s somebody else going aggressive and hiring,” says Khaled. “Legendary companies are built in times like this. Airbnb is a great example of a company that was able to respond to the market accordingly.”
“Recognize that you’re building a business – not just a cool app.”
#5. Be decisive
Don’t wait to make difficult decisions. Keep in mind you have a fiduciary duty to your investors. Making a definitive decision at a critical time builds more confidence with investors, because you’re increasing the chances for the company to succeed.
As Ben Horowitz, co-founder of a16z, once wrote1, “People won’t remember every day that they worked for your company, but they will surely remember the day that you laid them off.”
“There is no upside to delaying, only downsides,” Khaled says. “But whatever you decide, ask yourself, ‘Is it an emotionally driven reaction, or is it an objectively considered response to the situation you’re in right now?’”
The one thing to keep in mind?
All of Khaled’s tips, he says, really pivot around one core idea: “Recognize that you’re building a business – not just a cool app,” he says. “There’s no such thing as infinite capital out there. But if you’re focused on building a really good business, capital will never be a problem because you’re always finding ways to survive. And without that stable foundation, you’re always tempting fate.”
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Running a startup is hard. Visit our Startup Insights for more on what you need to know at different stages of your startup’s early life. And, for the latest trends in the innovation economy, check out our State of the Markets report.