We are a whisky startup, developing tools to make better and more interesting products in the field. As part of the Food Tech ecosystem there are many challenges we have to overcome: CAPEX heavy financing, highly regulated industry and many others. And though challenging, last year took us to a very positive position. We built a distillery and acquired a production license, did significant R&D and started POCs with first customers. 2020 started with full throttle takeoff and a steep climb. And then came the Coronavirus.
Similar to everyone around us, we are impacted by the current crisis. Being part of the hospitality & leisure industry, many of our customers stopped operating, financing has its challenges, and overall it is harder to execute.
The current crisis may become an existential threat to any company, and to avoid obstacles the threat needs to be managed carefully.
Over the last two weeks we came up with an internal work plan to handle the crisis. Since Nimrod Vromen (Our lawyer and a great resource in peak and down times) asked us to share, I portrayed our thought process in a way that we think can be helpful to other founders.Step 1 – Stabilize
i.e. define what you do until there’s a plan. We answered the following set of questions:
a. What is the impact on work? Who is less productive?
b. How much time will it take to come up with a plan?
c. Are there obligations or costs we can postpone until we have a plan?
d. What is the impact on cash flow? Step 2 – Assumptions and Internal Analysis
i.e. what should you take into account when planning?
a. Expect the current situation to last about 6 months.
We need to plan accordingly, and will have better knowledge as we go.
b. When everything is behind us, customers will act differently.
c. We analyzed our burn & expenses and divided into irrevocable liabilities,
and other planned burn.
d. We analyzed expected income and marked the portion at risk. Step 3 - Plan
Our current conclusion is to lower burn & wait, while still in a position to immediately raise burn. Unless directly related to essential products (like basic food or medical businesses), this idea is probably applicable to most businesses in this era. Here are the principles we used: Cash management
Prioritizing cash over profitability. Making sure we have 12 months of runway at any given time.
Incentivizing down payments on future activity (for example, giving discounts).
Building additional employee incentive plans (Including profit sharing) & lower salaries.
Going over all expenses & renegotiating where possible, build options to postpone and pay interest and so on.
Find cash resources. Seek existing investors' support, find new investors (for example, short term discounted convertible note), acquire debt and so on. Day to day work a. Manage human resources
Some of the team will be less productive, some can be more. We built a list of everyone and how we can use them. Lots of people actually have more availability (For us, our advisory board and investors). We built task forces concentrating on finances, opportunities, long term planning and others.b. Mark Opportunities
There may be opportunities in the market that can be captured. Both in terms of procurement (just negotiate better), and in terms of customers. We were approached by a few customers in direct relation to the current crisis.c. Build a list of R&D & Other company building tasks
Now is a great time to start drilling down on the endless to do list. Luckily have lots of planned R&D and ground work which can be done remotely. So when not working for customers, we focus execution on experiments and other company building work that needs to be done (standardizing procedures, documentation and so on). d. Evaluate Frequently
We built a company status dashboard that includes:
(i) Available cash;
(ii) 2020/2021 revocable and irrevocable liabilities;
(iii) Planned and actual monthly burn;
(iv) Company lifetime (including closing costs), with or without meeting liabilities.
For now, we evaluate the status on a weekly basis.Step 4 – Execute & Evaluate
Execution is always key, so after planning and coming up with the task list, there needs to be an evaluation of execution. On top of the usual company meetings we added a (i) weekly financial evaluation, (ii) daily / bi daily task forces meeting, and a (iii) monthly strategy meeting.
We will evaluate the status on a rolling basis, and check for relevance. Other bullet point / Lessons for the company's future
- Tough decisions should be made early, in respect to the cash position of the company, especially regarding salaries. Because of uncertainty, when relevant, procurement should be postponed or canceled so cash can be prioritized, people should be fired or receive lower salaries or amount of work. You can always pay more at a later time when there’s income.
- We will build (and already built some as part of the crisis) a few operation modes for the company, so execution will be easy if and when we encounter such a situation next.
- The company dashboard is extremely important. The tools we developed to understand the company status in real time is extremely valuable and we should have the information available at all times.
The key to overcoming significant challenges is to plan, prioritize and make the hard decisions early. Seems like this case is no different and I feel that many companies, if true to analyzing the internal picture, can overcome the crisis and emerge victorious on the other side.
And as a pinch of luck can’t hurt, best of luck to us all.
If you have any questions on the above you are welcome to email firstname.lastname@example.org
. Current times may dictate delays, but I usually reply to all e-mail in a few days.