Be Optimistic, Keep the Talent and Shift the Situation Into Your Perspective
During the second Virtual Beer Meetup, Endeavor Entrepreneurs and Board Members gathered for a powerful discussion focused on managing the business through times of crisis. Participants shared key lessons learned from the last global financial crisis and crucial steps for driving the business out of the crisis and back into normal operations. Bojidar Neychev (Endeavor Mentor & PwC Bulgaria Senior Partner for CEE) was our special guest and shared his vast experience with the network. In this blog post, we summarized the key takeaways from the meeting.
Lessons from the previous crisis
For some of our network members this is not the first crisis that they are going through. Therefore, they tend to accept it as a challenge that may bring new opportunities, rather than a terrifying new reality. They shared that during the previous economic downturn, those businesses that took quick measures (no matter if they were related to cost cutting or shifting the focus towards new goals), were more resilient to the risks. Contrary, the players who took too many precautionary measures faced more challenges as the situation normalized. In Bojidar’s view, being flexible and understanding the customers during the times of hardship would eventually convert them into long-term, regular clients. He added that “the crisis can serve as a test for the loyalty of your partners“ and noted that during the previous economic downturn the world’s largest economies acted in a united, collective way.
Keep the talent
If there is one takeaway all network members uniformly agree on, it is the vital importance of retaining the team members. Valuable talent should stay in the company – all other cost-cutting measures may be taken, but good employees should not be released (excluding the low performers who have proven to be ineffective over the years and now is the right time to be dismissed). The reason for that is the fact that we need to be well prepared when the economy begins to recover. If the companies can afford to keep their key talent, this decision will undoubtedly grant them better positions once the crisis is over. Vassil Terziev shared that the “crisis is a golden time to attract key talent from your competitors who are usually hard to get, and this will give you a huge advantage over your competitors in the long-term”. In addition to the topic, Bojidar shared that “A common myth is that the unemployment will rise – actually, this is only partially true – while some sectors will shrink, others will benefit from the situation and will experience mass hiring processes”. In times like these, solidary is needed throughout the entire company in order to survive – restructuring, workforce adjustments and if necessary, temporary cuts in the remuneration packages. The following method could also be incorporated: a certain wage minimum is identified – the salaries lower than that minimum remain untouched, and above it – change progressively.
Make multiple scenarios
Entrepreneurs should create three different scenarios – pessimistic, realistic and optimistic. These scenarios will be of great help when things get rough and taking informed decisions becomes crucial for company’s survival. For each scenario entrepreneurs need to have an estimated budget that will secure the proper running of the business. This will help the managers to know in advance what actions to take in a specific situation and navigate the company through the storm. Even if that means that at some point they will have to get out of the business. Vassil stressed that founders must ensure sufficient resources to run the company for at least 12 to 15 months. Otherwise, quick actions need to be taken and the Endeavor network is ready to help. Nevertheless, Vassil shared that he is optimistic in the current situation and positive outcomes may occur, provided that well-developed scenarios are created, and flexibility and employee-thoughtfulness are ensured. If these conditions are met, founders may even outperform the forecasts from the pre-crisis times (a true example from the previous crisis).
Take the money
The current situation is creating polarized opinions among the investors, Terziev revealed. They are unhappy because many of the deals they have been planning will not happen. At the same time, they are enthusiastic as they see market appetite and real valuations of the companies. The last crisis showed us that investments during such times turn out to be more successful, and this is a good opportunity to screen the successful companies. Terziev strongly advises that entrepreneurs should not worry if the companies’ valuation have fallen by 20-30% when negotiating with investors. They need to put things into perspective and plan for the next 10 years ahead. The capital they might get, even at a lower valuation, will help them go through the crisis, the effect of the money will be much more tangible than usual, and they will have better return at the end.
Prepare for a marathon, not for a sprint
Although it is too soon to make predictions whether the economic recovery will be U- or V-shaped, one thing is certain – the crisis is expected to be long lasting and we should prepare for that. Now is a good moment for companies position in their industries and remain optimistic. Vassil shared that 30-40% of the venture companies will shrink or may not survive. And even if they do, they will not have the same market positions (this will be largely due to the lack of staff).
Take advantage of the situation
While the current crisis has many negative aspects, the Endeavor network members shared that the opportunities that it provides should not be neglected. For example, the crisis is experienced much harder in Western economies where startups are used to a larger pool of resources and more funding which is more widely available. Actually, economic hardships like the current one might be in favor of emerging markets like ours. We can benefit from it if we manage to make the right decisions (first of which would be to retain the key talent). If companies manage to survive and use the time to prepare themselves, they will come out stronger with enhanced market positions after the storm passes. Another positive side effect is that it unites the team and reveals the true colors of people.
In conclusion, we should bear in mind that even if the crisis has had little impact on some economic aspects until the current moment, we are only at the beginning of it and long-lasting effect is expected. After the initial panic, many companies have already started or will start acting soon – they will begin developing new products and/or hire new staff. Crucial for our survival will be the ability to quickly adapt to the situation – both in terms of our personal life and the way we run our business activities.