Mini-series: Best practices for surviving in a downturn Part 1 & 2

While the full impact of the coronavirus on a personal and economic level remains to be seen, the influence on daily operations and company strategies is visible in most industries and teams, including in OpenOcean’s portfolio companies.

More than ever, your (software) solution needs to be a vital medicine, a key revenue-generating facilitator, or a cost-cutting enabler for your customers, who now focus mainly on staying in business.

In this series, we assume you have already taken necessary measures to make sure your teams stay healthy and can work productively in the new context. Many good articles on remote working best practices have also been shared lately. We want to focus on best practices from our portfolio companies and other software businesses, regarding — how to analyse the situation, the impact on your business, and how to respond to the challenges of an uncertain market.

Phase 1 — Accept the new reality and secure continued operations

Phase 2 — Make the most of the opportunity: step up your leadership, constantly monitor the evolution of the markets and enhance your value proposition to your customers.

Phase 3 — Get ready for post-COVID-19 and the new norm: your team, business model, and client base may have changed significantly

Phase 1 — Accept the new reality & secure continued operations

We expect that most companies have already by now moved from focusing on growth to ensuring short-term survival and to outlast the pandemic. Below are some of the best practices OpenOcean’s portfolio companies and other software businesses have implemented to do exactly this.

First, assume that regardless of the solution you provide, your business will also be affected! In a downturn decision-making is slower, customers suddenly have restrictions on their software purchases, key persons on the customer side are sick, or just focus on personal matters, invoices take drastically longer to get paid, and so on. You get the gist.

Second, in all your planning and actions focus only on what you can control. It is anyways impossible to make a perfect plan for all eventualities and external factors.

Immediate cost-related actions to consider:

• implement a cost-cutting program to shed all non-essential costs, any supportive activities and non-core subcontractors. Stop discretionary spending / reduce radically. Consider sharp cuts to the marketing budget.
• freeze new hiring and planned filling of open positions, which will decrease your future revenue if sales and customer success hires are affected. It is, however, more critical to make your cash last, than trying to reach pre-corona assumptions based sales targets.
• consider temporary layoffs, or moving employees to a four or even three day week. Use available, or issue new, options to compensate employees for such.

Revenue planning:

• analyse which of your current customer segments are hard hit in the crisis, and who will scale down usage or won’t be purchasing software. Update your customer churn and upsell assumptions accordingly.
• re-evaluate your sales pipelines, allowing for lower win ratios, longer lead times, and potentially lower ACVs.
• focus on secured revenue streams and paid deals. New features or services without up-front payments may have to wait, if synergies with your other sales are low or this demands additional resources.

Burn and cash runway management:

• analyse the impact of the market situation on each organisational unit, what role brings value in current clients/sales/development plans. This is the time to streamline your burn and organisation to focus on just the essentials.
• devise at least two or three scenarios portraying the effect of the pandemic on your business and over different duration scenarios, to have both somewhat realistic and pessimistic outlooks ready. Then define a plan on where and how to cut further, against what specific KPIs, to move rapidly if worse scenarios become a reality. If you are selling software to a hard hit vertical, in the pessimistic scenario assume little or no new revenue for a long time. In the worst cases, you may even lose much of the existing revenue for a while.
• when planning, rather make one bigger cut upfront than several smaller ones, as this is much better for stabilising post-change and for the morale of your teams.
• secure that your funding lasts at least 12, preferably 18, months.

Finally, put contingency plans in place to secure decision-making and operational capability if founders, CxOs, board members, or other key personnel get diagnosed with COVID-19 and/or need to take sick leave.

Some of these actions are certainly brutal for both decision-makers and the teams affected. However, the main objective of Phase 1 is to ascertain that the business survives the downturn.

You can read more of this mini-series here (Part 3 & 4).

As a summary, we´ll hold a webinar to address the best practices and give you the opportunity to ask questions. Join us at the webinar April 16 2 pm BST / 4 pm EEST from anywhere.