Never let a good crisis go to waste

For a lot of startups, 2023 has not exactly been a wonderful year. Some might even call it a year of crisis. Radically changed funding climate, lower valuations, deals getting postponed and more - it’s certainly not the glory days of 2022.

Obviously, that’s not really what we hoped 2023 would bring us, and the effect has been that a lot of us have had to change plans - which sucks, to be honest, when you have spent a lot of time planning and preparing. But as Lennon once said:

“Life is what happens when you are busy making other plans”

When you have to make - sometimes radical - changes, it’s easy to feel like you’ve failed. If the plan didn’t work out, it must have been either a poor plan from the beginning or poorly executed, or an unfortunate combination of both. Not necessarily so, as Lennon wisely deducted.

Whenever a plan doesn't work out, there are usually three possible reasons:

It was a poor plan

Poor planning is often a result of either too little planning or too much planning.

Examples of too little planning could be:

• Not looking into available data.
• Not fully understanding the space or the competitors.
• If you are launching in a new market, do you understand the dynamics in that specific market? As an example, we discovered that Portugal as a location was vastly more bureaucratic, that the startup ecosystem was a lot smaller than anticipated, and that due to everyone working remotely, it was a lot more difficult to meet people in person (apart from Websummit of course), to name a few things.
• Rushing execution. While fast execution is good and is, in fact, the pure essence of building a startup, rushing execution usually doesn’t end well.
• Lack of cash or poor cash management - either budget, liquidity or both.
• Your plan focused too much on output and did not have a clear outcome and clear metrics.

Examples of too much planning could be:

• Spending too much time gathering data and analyzing before you execute. The rule of thumb is that the first 80 % of data can often be gathered relatively fast, and the last 20 % takes a lot longer. Gathering the “right” amount of data is key.
• Too many stakeholders involved in the process often means too many meetings and too many diverging opinions, which delays the planning process.
• Lack of sense of urgency. Startups and scaleups are mostly restricted by a combination of money and time, and if you have 12 months to deliver a set of results, you simply don’t have the luxury of spending that time planning.

The plan was poorly executed

To avoid executing poorly on a plan, these areas are important to be mindful of:

• You had the best plan ever, but you decided to not actually follow the plan, and decided to do something else. Not following the plan, is the same as not having a plan - it becomes very, very difficult to predict the outcome. It might end well, or it might end badly.
• You did actually follow the plan, and continued to do so, long after it was crystal clear, that the plan was not working as intended.
• Not having the resources - i.e. people or money - that you needed to execute your plan.

Life happened/winds of change

When the winds of change rage, some build windmills while others build shelters.

Even with a great plan and great execution, you still might end up failing. Sometimes, the cause is simply that life happened. It is one of the most difficult situations to be in as a founder or leader because you have to be psychic or able to predict the future in order to make the right decision. Especially when change happens fast, you have to correct your course based on a non-existent dataset - and you have to do it now.

Some of the changes most startups and scaleups have had to handle in 2023 (and partly in 2022) are:

Different mindset and focus from VC’s and other investors. Monday it’s “spend more money, grow faster, enter new markets, hire more people!” and Tuesday it’s “what’s your path to profitability? Initiate immediate hiring freeze. Which markets are you pulling out of? Which products are you shutting down?”

Funding is a lot more difficult.

Clients and prospects are postponing deals, because their own deals are getting postponed.

Hiring the right people is still not getting easier.

There’s no or low visibility in terms of market conditions, interest rates, war/conflicts etc.

The “life happened” situation means that you have to make an immediate decision as to whether you should:

1. Scale up - or build windmills - in the anticipation that the situation is about to change for the better
2. Stay on course - or build shelter - which really is only an option, if you expect the situation to change soon, and you are very well funded
3. Scale down - depending on how you see it, would this be reverse windmills? Smaller shelters?

For most startups the biggest part of your cash spend is…people! So unfortunately, it often comes down to whether your team should grow, or whether it should shrink. The trend this year have for most startups and scaleups have been smaller, not larger teams, and it poses a massive challenge as you as an organisation is forced to decide two things:

Who should you let go?

I’ve written about labour hoarding in the past, and it really is one of the most dangerous things you can do as a startup or scaleup. Your single biggest item in terms of spend, and if you don’t make a decision to let people go, you can’t survive.

Not only is there an enormous impact on the employees, who are leaving, but it’s also incredibly painful to let people go, who you worked hard to hire and retain.

While I can’t tell you who to let go, it is a time to focus on achieved results and actual outcomes. While you may have all sorts of personal preferences, and believe in people and their potential, your focus should be retaining the part of the team that is performing and delivering the outcomes you need.

Of the People left - is that the right team to help you succeed? And sometimes even survive?

The lesser of two evils is of course to part with some of the organisation (assuming that you must reduce staff cost), and retain the remaining part of the team. Unfortunately you will often find yourself in a situation, where you need a different skillset or need to grow part of the organisation.

While each organisation might be in a different situation, we have seen two very clear trends in 2023.

1. Smaller teams with more senior people - think two very senior developers instead of four junior/mid level developers
2. Engineering teams are shrinking, commercial teams are growing

Especially because funding is more difficult this year than in the past, there simply is no better way to grow and achieve success than clear and demonstrated commercial growth. Some startups choose to more or less abandon the VC track and decide to bootstrap, others find that their bargaining power changes dramatically when they approve their commercial results.

As one startup founder recently told me: “We have spent so much time looking for funding that we managed to become cash-flow positive in the meantime.”

Hence why you should never let a good crisis go to waste. It is an excellent opportunity to rethink, regroup, replan, cut unnecessary cost and prepare yourself for the future. Coupled with agility and strong execution, you may find yourself in a dramatically stronger position than before the crisis occurred.