Bursts of Color - Red Light, Green Light
Yes, the economic climate is volatile and capital is more expensive than it was last year. Some investors are pulling term sheets and others are publicly calling for their version of "RIP Good Times" just months after chasing valuations to the stratosphere and encouraging growth at all costs. I think Jack Altman described this whipsaw effect well:
"Red Light / Green Light" Is a Poor Way to Build
I've talked with many of you in the last few weeks and have been reminded that (duh!) every company's situation is unique. Yes, a few companies are short on cash runway and may need to follow the "red light" pundits. For most everyone else, however, I'd encourage you to stay calm and follow the plan that makes sense for your company, without either over- or under-steering based on Twittersphere sentiment du jour.
Burn Multiples Are Always Important
For those updating financial plans, this is a natural time to remind yourself how much cash it takes your company to generate an incremental dollar of revenue. David and Jeff at Craft Ventures have written these helpful primers on the "Burn Multiple" for SaaS Companies and Marketplaces. The headline is that, even in frothy times, we should seek to burn less than $2 for every $1 in incremental revenue.
Layoffs: If Really Necessary, Make Them Matter
Sometimes a company must reduce payroll to make ends meet. I have been there and it sucks. In these cases, effective leaders do what must be done to significantly extend runway... hopefully with humility and empathy.
In contrast, there have also been some headlines of fast-growing, well-capitalized companies publicly rescinding offers and laying off people they recently hired. I don't pretend to understand what's going on internally, but from the outside this seems bizarre.
Ben Horowitz posted The Right Way to Lay People Off back in 2010. It's still the best thing I've read about layoffs. One timely passage:
Going into a layoff, board members will sometimes try to make you feel better by putting a positive spin on things. They might say: “this gives us a great opportunity to deal with some performance issues and simplify the business.” That may be true, but do not let that cloud your thinking or your message to the company. You are laying people off because the company failed to hit its plan. If individual performance were the only thing at issue, then you’d be taking a different measure. Company performance failed. This distinction is critical.