Why building trust is your ‘go to’ test for emerging safely…
Quick take away: if you have only 10 seconds — the secret to firstly survive and then thrive in a time of crisis is to build trust — with yourself, your team and your customers. If you want to know how and why…. read on:
What are my options?
For some startups, survival is about heading into hibernation and sitting out the crisis. For others, it’s a full pivot as your market isn’t going to recover. or perhaps lastly, you both face rising demand and rising uncertainty about your industry all at the same time!
Whatever your startup business options, we are in a phase in which our personal, financial and business resilience is being tested — so how do we build these so that we firstly survive and secondly thrive:
Building personal resilience
Resilience gets built when you’re outside of your comfort zone — and once you learn that you can decide to just ‘not quit’ for one challenge, then you can use that personal resilience and apply it to the next challenge.
Look at past challenges that taught you endurance — the ability to keep going even when you didn’t know how it would end!
And look for the events that developed your patience — where you learnt just to sit something out without knowledge of the final outcome and to do so with optimism.
In each of these examples we will have developed our ability to accept we don’t control the future and yet to keep positive and keep moving ahead regardless. That’s personal resilience and it is a strength that we can now draw on.
Often, this resilience was built in us through travel experiences or working and studying abroad in different cultures.
Develop the ability to do two things at once
Founders live in an uncertain world — and that experience is an asset at times of crisis.
However, one thing stands out — the ability to do two different and opposing things at once. For startup founders this is typically a combination of seeking short term income / revenue to keep the ‘wheels on the road’ whilst simultaneously thinking about the long term value creation of your startup and your product proposition.
More experienced founders tend to be able to do both of these things at the same time — and this is a hugely valuable quality to develop and deploy in a crisis.
Financial resilience- for yourself and your people
Resilience isn’t just about our mindsets and personal inner strength — it is also about the practical issue of having enough to eat and pay the bills.
Pay yourself — look after your bills
Founders will often pay themselves last — and as leaders, this is a smart move.
However, it is also important to always pay yourself something. If you work and take no pay, it will not only leave you financially vulnerable and stressed but also build resentment.
Equally, many founders — where at all possible (yes, it is nearly always possible), will strip back their pay and help their team members maintain their income. This will be especially true if you have co-founders or team members who have family or care costs that they simply must meet. If that is the case, then find a way for them to earn what they need.
- At the same time, don’t just ask people to forego pay — nor ignore paying yourself. If pay reductions are necessary, consider some of these ideas:
- allow those people taking cuts an opportunity to earn back the missing amount through bonuses and incentives
replace some pay with loans (although this may have tax implications)
- in some cases you may simply be able to delay some payments by 6 or 12 months
- some companies (such as Revolut) have offered £2 of share options for every £1 of paycut — as a way of shifting remuneration from fixed salaries to reward based gains
Whatever you do, and it will vary depending on your situation, sit down with people and have honest frank conversations around their individual needs and the business’ revenue. If the personal trust is high and the group is small, it is possible to do this collectively. If the group is larger and trust is weaker, then this may be necessary on a one to one basis.
However, the key to all these conversations is trust — if you have built trust with your team — and taken a pay cut yourself — then these conversations will go better and be smoother.
Building Business Resilience
Businesses also build resilience. This is a combination of financial strength to combat crises but also the collective team strength too.
However, financial resilience isn’t just about money in your bank account. It is also about your ability to draw in new income — or even investment.
Is coronavirus a different crisis?
Coronavirus is a different sort of crisis because it will be around for a long time — so it needs a different response — and this is therefore also a time to think about how the business can do things better — and how the business can scale better too.
Are you in the right role?
Some businesses are discovering — out of necessity — that the right people were in the wrong roles. One company moved a Head of Operations to customer facing role — and it is working brilliantly!
This might be the opportunity to move good people to new roles.
Resilience is a team game
Resilience is easier to build when you have co-founders to share the tough times and build collective ‘toughness’ together. This might be especially important as a first time founder, so pull those co-founders close and double down on keeping the relationships healthy and strong.
To some extent, these tough times will also flush out weak co-founding teams and it might be important for you to have a tough conversation. See How to Overcome Co-founder Fights and Get Your Startup Scaling Again.
Hopefully you’ve choose great co-founders; people you have know over time and where willing and able to work on your project long before long before they became partners? If not, tough conversations might be necessary.
Once you are a team, anything that goes wrong is shared by all. So, can you call up your co-founders in the middle of the night to fix stuff? If not, it is time to question whether you have resilience in the team.
Managing your revenues through the wave
It is wise to approach the current crisis as a series of on coming waves.
We know what the first wave looks like — more or less — and that is, large numbers of people furloughed and home working. Many, often service based, businesses are closed at the moment — but they are not shuttered or bankrupt.
In this phase, we have a moment of time to ask — can we do everything better ? Does our market still exist in the same way as before and if not what do we do? Can we collaborate with new partners and form new agreements?
Let’s assume that lockdown ends quickly — that could mean that when the furlough status runs out, we see wide spread bankruptcy and non payment of bills.
So, how do you move your startup to a position that once we are through the summer and into the autumn that you can survive another 6 months lock down or conversely, have built up cash, resource and goodwill so that you can attack your market opportunity with energy and effort if the next lockdown never comes?
Do you have revenue that makes sense or do you have to pivot?
Sales to large organisations that take 4 months to pay might make life worse for your company. Instead, can you build a direct to consumer model that pays you before you deliver? If so, you have a few months to build a cash buffer as well as a new channel to market.
As a beginning, do you clearly have revenue to survive the next 9 months as a minimum and the next 24 months ideally? If not, then it is time to start testing new approaches:
Everyone is a startup — begin by testing hypotheses
Once companies effectively become startups again — looking to find revenue and market fit — then everything becomes a hypothesis (see this video of how scaleups reverse back to startups).
In particular, pay special attention to customer acquisition costs and customer life time value. These can move very quickly for, or against you.
Look for new opportunities — or lean into new opportunities — designed for the weightless world. In particular, the rush of producers to sell direct to consumers is creating a new class of business — Producer to Consumer instead of BtoB or BtoC!
Be open to reviewing your business purpose or mission— how does apply to this new situation ? And are you tempted to pivot in, towards your core competences or pivot out to where the money lies and the bigger competition sits?
Lastly, ask, where are we now — what people do we need? What resources do we need to add? This is the time to go about securing those to build that better business and of course, better businesses are the ones that will be first out of the door when the funding world returns to normal again.
Do you have the right investors?
It’s important to also ask whether you have the right investors on board?
Discretionary capital — angels / EIS funds are taking losses and using remaining funding to support their existing portfolios. This means that for the next 6 to 9 months, they are not going to be open to new investment.
Getting funding back to ‘normality’ will probably take 24 months. Why? Well, if the stock market bottoms out in 6 months making a sensible time to invest — why would a business angel invest in an illiquid business for a 10 year period when the stock market offers rapid growth over the next 12 months?
How to build trust with investors
If you have investors, this is the time to increase your communication with them so that they understand that you are fully engaged in doing what is necessary to save your company.
In particular, VCs’ backers will have different priorities today and possibly need returns earlier — driven by the pension funds etc… that provided their money. Hence, stay in touch and use this time to get to know what’s happening in your VC’s world too. The same is also true for business angels.
Actually, building trust with investors is a great thing to do, but building trust across your customer, supply chains and teams is even better.
Trust — the secret ingredient for survival
You can see it in political leadership — those that build trust gain influence — those that don’t lose their ability to influence people and events and eventually get swept away.
Trust is challenged when you mess up or hit a crisis — but if you handle it well and fix it, then you move on with your trust enhanced.
In many ways, business survival is about how you respond to things that go wrong.
Many investors and scaleup coaches will tell you that they know which companies will survive by the way they respond to when things go wrong…
In particular, great startup leaders show these attributes:
… the ability to receive advice and act on it. This isn’t to say they should act as sponges, but rather, they have the mindset of listening to others and the ability to translate that into action.
…a decision making process. Businesses which take either too long or depend on an unachievable consensus don’t survive crises.
Often, smart startup founders will make careful and moderate use of highly experienced coaches or mentors who add huge value to their decision making processes without weighing down the company with overly high fees or inappropriate ‘corporate’ ideas.
Become the market place or service that everyone relies on…
As we move beyond the basic trust building exercise of surviving and keeping your people, customers, suppliers and investors (if relevant) on board, then there is still a bigger ‘trust’ goal and that is to become the market place or the service that everyone relies on.
For instance, if you are working in a traditional conservative business — where all business is done face to face —this is your opportunity to prove that working through a digital platform is a better option.
Equally, if your sector is heavily dependent on trade shows, can you demonstrate that your platform is the trust worthy alternative to costly exhibition shows, flights, hotels and expenses?
Recognising that many businesses are hurting — because their typical route to market, a trade show — is no longer delivering leads, gives you an opportunity to establish your service or platform.
Building trust will ensure that you get the balance right between free / free trials and charging money / earning a commission. Of course, if you get it wrong, fix it, openly and honestly — as that too will build trust.
This article is the fifth in a series of articles on how to respond to the coronavirus crisis. Previous articles covered successful selling and marketing in a time of coronavirus and building home based teams and fundraising and cashflow plus The New Normal.