How your business can survive—and thrive—in a financial crisis

How your business can survive—and thrive—in a financial crisis

Author: Sean Byrnes
|
Read time:  6 minutes
Published date:  May 21, 2020
|
Updated date:  February 21, 2024
Sean Byrnes shares strategies that helped his businesses survive and thrive amidst two major financial crises.

When I graduated with my Master’s degree in 2001, the dotcom bubble had just burst, the S&P was in the process of falling by 50%, and I was sure the market was in the worst crisis I would see for my entire career. 19 years later, I’ve founded multiple companies and had to navigate two more major crises: the 2008 financial crisis and the current COVID-19 crisis. My companies have both survived and thrived amidst these crises thanks to deep planning and strategy.

Here, I’ll share some of those strategies and what I learned along the way, in hopes it will help you weather the current storm at your own business. 

Crisis management basics

In a crisis, everything changes. The assumptions and expectations you relied on for your planning are now up in the air, and it’s unclear when and how it might return to a stable state. As a result, you need to change the way you think about strategy. 

The first thing to do is change your planning horizon. In a normal market, you likely do annual planning to set goals for your business. When a crisis strikes, immediately put that plan aside—it’s no longer relevant—and move to weekly planning. More specifically, commit to coming up with a new plan in a matter of weeks.

You shouldn’t plan more than a month or two into the future, since the market isn’t stable enough to look any further ahead than that. As the market stabilizes, you can slowly plan further in advance, until the recovery begins and you can start to do annual planning again. Note that recovery doesn’t mean things return to the way they were before, but they should be stable enough to predict far into the future. 

So, after adopting a new approach to your planning, what exactly do your plans look like? Since there are so many unknowns, you need more than one plan. The plan you had entering the crisis now represents an aggressive plan, one that is likely too aggressive to realistically pursue during the crisis. You need to create a new conservative plan, one that you know you can achieve despite these new challenges. These two plans represent two different extremes: aggressive and conservative. 

When the crisis first hits, you should immediately move from the existing plan to the conservative plan. This will reduce your spend and help you conserve capital in order to navigate the uncertain waters ahead.

However, the goal is not to stick with the conservative plan throughout the crisis since that might lead to a slow death for your business. You want to watch for signs ( read more about finding early indicators) that you can be more aggressive and move to the existing plan over time as the market allows. At first this move will be slow, but eventually you want to move quickly to ensure you are ahead of the competition in preparing for growth when that is a possibility. 

This goes against the instincts of most founders, who want to be aggressive at every turn. Unfortunately, mistakes are extremely costly during a crisis, so being too aggressive can become very expensive and cause you to burn through precious capital at a time where new capital might be scarce. By shifting your planning horizon and balancing the two different plans, you’ll be able to adjust based on market signals. 

Fundraising in a crisis

It is possible to fundraise during a crisis, but it looks vastly different than during other times. The capital you can raise, the valuation you can expect, and the terms of the investment are all going to be radically different before, during, and after a crisis. 

If you do need to raise financing, my best advice is to wait until after the crisis has passed if you can. Investors prefer stable markets where they can foresee the future more clearly, and during a crisis that is impossible. You will find a wider network of investors and better terms of investment if you can wait until after the crisis ends. 

If you cannot wait, then it is imperative to hone your fundraising message. Your value proposition, your differentiation, and your long term prospects must be crystal clear from the first slide of your pitch deck to the last. The investment market will be unforgiving, so you need to rise to the occasion. Investor meetings will be harder to come by, so each one becomes a precious opportunity you don’t want to waste. 

If you are lucky enough to get offers of investment, more than ever, you need to understand the long-term impacts of short term decisions to ensure that you make the right decision for your business. Many of the terms of financings during a crisis look like terms of investment in distressed businesses. This can mean very low valuations, aggressive control terms, and restrictions on actions you can take without investor approval. All of the terms represent future liabilities if you survive the crisis and scale, since you will live with these terms for the rest of the life of your business. It might even be better to let your company fail than agree to terms that will waste the next few years of your life. 

There are too many pitfalls to list here, but any experienced founder or lawyer can talk to you about these in depth. Any of us who have navigated crises in the past have seen investment terms that are horrible (and borderline illegal), and we are happy to share those lessons with you to help avoid the mistakes we might have made ourselves. 

Leadership in a crisis

The hardest parts of managing a crisis are supporting your team and staying focused while the market around you is in chaos. We are all people first and employees second, so a crisis affects us emotionally as well as professionally. Even if your employees know their jobs are secure, they likely have friends and family who are losing their jobs, which increases everyone’s stress. 

It is tempting to avoid sharing bad news with your team during this time, but being transparent is more important than ever. While you might feel like hiding bad news is doing your team a favor, all you are doing is ensuring they will have bad surprises later and further erode their trust and morale. Transparency of both good and bad information builds trust and allows your team to prepare accordingly. 

The best thing you can give your team is purpose. Your team wants to work toward something and focus their energy on something other than the market news. This might mean focusing on new product features, new customer segments, or new offerings, and in many cases it might require you to operate entirely differently than you did before. These goals are critical to keep your team motivated.

Even better, if you execute well you might find new growth opportunities amidst the crisis. After every forest fire there are green shoots of new plant life immediately after. You can find these green shoots in your market, which are new opportunities that were not possible before the crisis. For example, in the current pandemic demand has skyrocketed for home decoration products as people are forced to spend more time at home, leading to new revenue opportunities at companies that recognize and capitalize on that trend.

In a competitive market, the companies that find green shoots first often emerge as the new leaders in the market.

Care for yourself

It’s easy to get lost in managing your company and supporting your employees during a crisis and lose sight of your own needs as a founder. You are not superhuman, and you cannot ignore the stress, emotions, and struggles that you are feeling below the surface. Make sure you have time to decompress, a support network to talk with, and clarity on how hard you can push yourself before you burn out. 

You will likely face many crises in your career. Navigating a crisis is not easy, even if you have done it before. Life happens to us, and unfortunately crises are a part of life. The skills of crisis management are the skills of life, and mastering them will provide value along your entire life journey.

DISCLAIMER: Any opinions, analyses, and conclusions or recommendations expressed in this article are those of the author(s) alone and do not necessarily reflect the views of eShares, Inc. dba Carta, Inc. (“Carta”) and they may not have been reviewed, approved, or otherwise endorsed by Carta.  This article is not intended as a substitute for professional advice or services nor should it be used as a basis for any decision or action that may affect your business or interests.  Before making any decision or taking any action that may affect your business or interests, you should consult a qualified professional advisor. 

Author: Sean Byrnes
Sean Byrnes is the CEO & cofounder of Outlier, which helps global consumer, financial services, and pharmaceutical organizations identify unexpected changes within their critical business data. The Outlier automated business analysis platform uncovers unexpected patterns and relationships using advanced artificial intelligence and machine learning algorithms. Previously, Sean founded Flurry, a leader in mobile analytics and advertising and sold it to Yahoo! in 2014. In his free time he advises early stage tech companies and invests in many others.