Techstars Advice For Startups In An Economic Crisis: COVID-19

Mar 23, 2020

By David Cohen, Founder and Managing Partner of Techstars

Today the world looks vastly different than it did a month ago and all of us are trying to digest what that means for the future. We’re facing a challenge unlike anything any of us have seen in our lifetimes. Hard decisions are going to be made.

The following are my general thoughts for early stage companies that may not have an active and engaged board of directors. With thousands of companies in the Techstars portfolio, it’s difficult to write generically good advice. If you have a strong board of directors and a more mature company than this advice is not meant to override or conflict with your board. For those that don’t have strong engaged boards, our recommendations below are generally applicable.

01. Breathe

Take a moment and breathe. As a leader, you must lead calmly and be planful.

02. You are not alone

Recognize that you are not alone... you have peers to talk to through the Techstars network or through your own startup community. This is a great benefit!

For Techstars companies, I encourage you to utilize Discuss in Techstars Connect to share content, query the network, and learn from others on how to deal with today’s reality. Lean in to each other... leverage the Techstars network and your fellow founders for advice and counsel. We will be creating virtual opportunities to engage with each other. Check back here often for forums, Second Thursdays, Chapter events, talks, AMAs, etc.

Many of these resources will be open to all founders, because we are here to help entrepreneurs succeed, and we know you will help us build a better world. This is more important now than ever.

03. We are here for you

We are here for you. Techstars is a family. If you’re scared, recognize that this is ok and not something to be ashamed of. Reach out and talk to someone.

I hope that everyone has this community to reach out to. If you haven't engaged much in your startup community before, this is the moment to do so.

04. Take care of yourself and your people

Take care of yourself and your employees... if you haven’t done so already, work to adopt a remote work experience. See Brad Feld’s blog post on the #LeadBoldly initiative, which outlines what you should do. And take that pledge for your own company.

05. Re-evaluate your business

This is a moment to re-evaluate your business... cut costs, review and change your 2020 forecasts, stop hiring, draw down debt, and do everything you can to extend your run rate. Travel and expense spending should be reduced to zero while people are not traveling.

Your 2020 budget is wrong. Plan for new scenarios that are more realistic now, rather than assuming you can weather the storm and simply stay the course. Control spending and cash while you can. Focus on optionality that cash reserves bring rather than a growth at all costs mentality in this moment.

06. Stop hiring

Stop hiring and recruiting for a while. Delays are better than over-extensions. New employees can’t work from home effectively anyway. Push this activity off.

07. Cut expenses

Reduce optional expenses. Be aggressive about this and target anything in your expense structure that isn’t truly necessary. Review and stop all new purchase activity unless it's critical. Cash is king until you have a handle on your new reality.

08. Get fundraising and M&A deals done

Don’t haggle on fundraising and M&A deals. Get them done. Now is not the time to push hard on valuations or terms. Be flexible, and recognize that the landscape has changed. Move quickly on any open deals to get them to the finish line.

09. Make the tough choices

You have tough choices ahead... work furloughs, salary reductions, and, as last resort, layoffs. With any layoffs, consider extending option exercise periods. Be thoughtful about each approach and try to extend healthcare coverage for all regardless of the path you need to take.

10. Consider salary reductions

Consider a temporary salary reduction. Given the choice, many people will be willing to take a 25% - 50% salary cut instead of being laid off. You have to lead by example here — you have to take a greater cut than everyone else (or, at the minimum, the same %, which is greater $). This should not be a deferral, nor is it a "we'll make it up with equity or pay it back in the future." It's a "we are all in this together" maneuver.

The length of time for this cut is indeterminate, but the commitment has to be clear around what it is and what happens when things stabilize. If your culture doesn't support this, you should be contemplating a reduction in force to tighten up expenses. Now is the time to be in cash conservation mode. In our experience, you should be thinking about cutting back about 25% more than your initial reaction likely says.

This is hard. We know that. We're going to keep adding information and resources all the time as this crisis continues. We want to help you get through this.

In the meantime, be kind and support each other.

About the Author
David Cohen

David Cohen is the Founder and Chairman of the Board of Directors at Techstars. David has been an entrepreneur and investor for his entire life. He has founded several companies and has invested in hundreds of startups such as Uber, Twilio, SendGrid, FullContact, and Sphero. David is the co-author with Brad Feld of Do More Faster: Techstars Lessons to Accelerate Your Startup and the co-host, also with Brad Feld, of the Give First podcast.