How do we approach planning given COVID-19?
Section 1, Making Sense of Macro Conditions and Market Signals, covers evaluating current standings and planning for just about anything.
When Will We Bounce Back?
We don’t know how long this will last.
First Round founding partner, Josh Kopelman, advises business owners to “know what they are betting their companies on and force yourself to acknowledge it.” He states that of the largest recessions in the last 50 years, the average length of time until we hit rock bottom, before recovery, is about 12 months. There is possibility for a quick recovery, long recession or even a depression.
According to Mark Bartels, Invoice2Go CFO, “when a recession starts, nobody knows when it will end or how deep it will cut…brace for impact by assuming that these conditions will broadly and harshly impact your customers.”
Consumer spending habits may change due to mass unemployment.
First Round partner Bill Trenchard added, “…when people stop spending money…budgets start coming down and people start maximizing profit over growth, it might be unbelievably hard to sell your product.”
Section 2, The Case for Responding Quickly and Thinking Through Scenarios, invites businesses to start getting comfortable with being uncomfortable.
Act Now to Sustain in the Future
Start Developing Several Plans for Different Outcomes
- V-Shaped Recovery: A sharp, precipitous drop, followed by a swift rebound as the economy recovers – e.g. the 1953 US recession.
- U-Shaped Recovery: The bottom is a less-clearly defined curve. Growth does recover, but it takes longer than planned – e.g. the 1073-1975 US recession.
- L-Shaped Recovery: A severe recession or depression, where even after recovery, the growth rate can still be lower – e.g. Japan’s “lost decade” in the 1990s.
Delay and Inaction Won’t Serve You
Doing nothing for now isn’t putting off the decision, it’s making the decision of inaction. Kopelman warns that the risk of ruin increases with time.
“Every day you don’t reduce your burn rate is a day that narrows your chances of being able to ride this out if the worst comes to pass…I’m pushing founders to react so aggressively now because I’m informed by my previous experiences with economic contractions. The companies and founders that really understood the scope of possible outcomes and put together a scenario plan for the worst outcome – while hoping that the worst outcome didn’t materialize – were the ones that survived. The ones that waited too long struggled.”
Get to Work; Change Things Up
There is no time to “wait and see” how things pan-out after COVID-19. Be proactive, get busy reworking your plan.
“The best founders are resetting immediately. They’re saying, ‘Oh my God, I’ve really got to think about the bigger picture and I don’t do this normally. How do I get smart on that? Who do I talk to? What do I plan for?’ And then they do all of that scenario planning work, pick what they think is the most likely outcome and start implementing to take decisive action,” Trenchard said.