Home Contributors Westchester Jeff Werner: Impact of Covid-19 on your startup business

Jeff Werner: Impact of Covid-19 on your startup business


jeff WernerPlease note. This article was written prior to the passage of the stimulus package. Important new information: Staff reductions may make your business ineligible to government provided relief programs. Please stay up to date on stimulus criteria prior to making any major and lasting changes, most notably concerning jobs and payroll.

Over the last several days I have been scrambling to not only adapt to the unprecedented experience of self-isolation and social distancing, but also to digest the effects of a significant economic downturn. I’m sure you have been as well. In particular, I have been wondering how best to assist the businesses and founders I routinely engage with. It’s a challenging time for sure, so where do we go from here?

Well, first things first. Are you taken care of? Your family? Have you adequately prepared physically, emotionally and psychologically for a significant life-changing event that might last weeks, months or a lifetime? If not, you should make this your number-one priority.

Getting down to business
This is yet another time where one size does not fit all. Each company must adapt in different ways. Some will need to pull back, while for others it’s time to hit the throttle.

If you have an enterprise that isn’t being negatively affected, great! Take care of business and keep going. I can imagine certain SaaS (software as a service) platforms and other data service providers might fit into this category.

You may even have a company that is experiencing a growth spurt with business not being conducted “as usual.” In this case, make sure your messaging is considerate and respectful, since so many people are suffering during this change. 

Pacing your growth
Also, it’s very important to reevaluate your business strategy and pace your growth. It is very possible to grow too fast at an unsustainable speed and/or to an unsustainable size. Consider that you might experience a short-term growth spurt that might quickly shrink. Points to keep in mind:

  • Do you have sufficient working capital, (or have access to capital) for initial cash outlays and to support an accounts receivable growth?
  • Can your operational and administrative staff scale up rapidly?
  • Is the leadership and/or advisory team up to the task?
  • If you have a hard goods supply company, can manufacturing and your supply chain support the growth spurt? (Remember that they, too, are adapting to this new environment).
  • Will your technology scale?

These are just a few broad considerations. Make sure you drill down on the details. Also, update your financial model to reflect the changes. You might be growing your way to bankruptcy.

Assess your situation
Now, for the majority of companies that are experiencing a downturn or even facing a cliff: First and foremost, don’t panic! If you are panicking, and it’s totally understandable, don’t make rash decisions. These are rarely the correct ones in the larger picture.

Do what you need to do to reestablish a rational foundation for decision-making. From that place, assess. For certain, your plans are derailed, at least temporarily. Supply chains are disrupted, overhead may now exceed revenue expectations and available investor capital may have all but dried up. In this instance, tough decisions need to be made.

As founders, you owe it to yourselves and to your investors to make the difficult decisions to protect company funds. If you need to downsize your staff, your office and the “nice-to-have” items in the expense category, do it. Survival of the company is paramount. While this may be tough, do your best to handle matters openly and considerately. Remember that as a founder, making the tough choices is your job and is often necessary in business.

Good decisions now will pay off later
Following the short-terms cuts, take the time to reevaluate your capital acquisition, operational growth, marketing, sales and product development plans. Given what we’re seeing so far, I would consider at least a six-month derailment.

Aside from the macro-economic matters, your product offering will also factor into the recovery plan. If you offer “needs” to businesses and/or consumers, your recovery is likely to take less time. If your offering is more in the luxury range, consider that your recovery will happen at a slower pace as buyers will need time to rebuild their financial foundations and their confidence.

One of the biggest considerations at this time is your employees. Do you let people go? Do you shift them from full-time to part-time? Do you ask everyone to take an economic hit for the team? Only you can decide based on your company culture. Consider trading equity for pay cuts. Consider offering less responsibility for less pay. Making good decisions now – treating people well and fairly – will make a big difference to company morale and long-term loyalty. 

If you’re currently raising capital, hold onto your hat. Private equity is starting to drive down valuations. It’s not personal, but we’ve just had a dramatic market shift. It’s all supply and demand, and overnight that supply has shrunk. In other words, money will cost more in the near term.

Be sure that if you’re facing such a situation, model out your capitalization table. Make sure your company can afford the new high prices for equity. If you can wait it out, consider doing so. Again, take care of yourselves and your existing investors.

Again, it’s not one size fits all, but with enough alacrity and good spirit it is possible to get through this! 

Jeff Werner, CEO of The Field Group in Beacon, is a business adviser, investor and mentor who focuses on capital acquisition, expansion strategies and resource allocation. He is a founding partner of Cheerity, a social media-based technology company in New York, and his portfolio includes a select group of Hudson Valley startups, including Loliware, the edible bioplastics company. Werner sits on advisory and director boards of Our.News and Orto Foods Inc., and is a managing member of the Hudson Valley Startup Fund, a member-managed seed capital fund. Reach him at Jeff@fieldholding.com.

Print Friendly, PDF & Email


Please enter your comment!
Please enter your name here