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What Advice Are Venture Capitalists Giving to Startups in Light of the Coronavirus Crisis?

Posted: 23 Mar 2020 02:50 PM PDT

The coronavirus pandemic is broadly affecting businesses globally, but it is affecting startups particularly hard. In this article, I have gathered some key advice to startups from leading venture capitalists and others connected to the venture industry.

1. Cash Runway Is Paramount

"We suggest you question every assumption about your business, including [cash runway]. Do you really have as much runway as you think? Could you withstand a few poor quarters if the economy sputters? Have you made contingency plans? Where could you trim expenses without fundamentally hurting the business?"

—Sequoia Capital

2. There Is a New Reality

"Startups hoping to get a round done imminently, praying this goes away soon and thinking the world will be the same need to realize there is a new reality. At Arbor Ventures, we are working closely with our companies to reduce their burn immediately, adjust customer expectations, and identify new opportunities that will emerge. This is a time to stop and think about what is next and what significant opportunities will exist. Founders who can escape the noise and capitalize on the needs of a new world order will build great companies."

—Melissa Guzy, Arbor Ventures

3. There Will Be Opportunities to Shine

"Your company may be uniquely positioned to step up during this challenging time. There is so much that is still unknown, so be vigilant about assessing the market as circumstances unfold. Run hard at opportunities that may emerge and be ready to adapt your product to meet evolving demands. Use these openings to not only drive incremental growth, but to reinforce your brand and reputation."

—Ellen Herlacher, LRVHealth

4. Keep Your Friends Close

"In an environment like this, it's critical to maintain strong relationships with your key customers, partners, and employees. Have a thoughtful plan of engagement for each of these key stakeholder groups. It's never more important than in times of crisis for your partners to feel like you have their back and are there to support them. Investing in this now creatively and with authentic engagement and energy will pay enormous dividends in the future."

—Phil Dur, PeakSpan Capital

5. Over-Communicate

"In times like this, people don't like to be in the dark. Leaders must rise to the challenge and proper communications is the first lever. Keep your employees informed. Keep your customers in the know. Keep your vendors and your partners abreast of what your company is contemplating. If you can be counted on to deliver consistent, recurring information flow, others can act and respond accordingly. Show empathy, acknowledge you don't have all the answers, and share what you individually will be doing. The mode of the communications, written or verbal, doesn't matter."

—Michael Yang, OMERS Ventures

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6. Be Swift and Judicious

"We are doubling down on portfolio support, with the assumption of a recession as the base case. Be swift and judicious with any opportunity to extend burn at the moment. Hiring cuts should be considered very carefully; if they are needed, a proactive approach is ideal and will feel uncomfortable. Let's validate and be realistic with our monetization strategies and business model with regard to 2Q expectations. Expect delays in fundraising and lower valuations. Be mindful of how the downturn may create silver linings. We remain clear-eyed, risk aware, yet optimistic."

—Kira Noodleman, Bee Partners

7. Freeze Fundraising for Now

"Hope for the best but plan for the worst. All new business activity and fundraising are probably in the process of freezing up. If you're in the midst of a financing process, stop negotiating and close. If you're embarking on a financing process, consider whether you can pull back and wait and/or be prepared to take a suboptimal deal. In the face of a large decision involving a new investment or major new initiative, every partnership meeting, every executive team meeting is going to ask themselves, 'What's the downside of waiting on this one?' In the never-ending battle between fear and greed, fear is gaining the upper hand. Act accordingly."

—Flybridge Capital Partners

8. Opportunities for M&A Will Dwindle

"This downturn will affect all of us, big and small. As a result, traditional acquirers will be less open to acquisitions and if they do they will look more carefully at the 'cost' you will represent to the acquirer. Of course, if you are profitable, you will be in better shape. Good companies will always get bought and smart acquirers will always be there. However, founders need to still build strong relationships with acquirers and be realistic about valuation expectations."

—Pear Capital

9. Execute a Plan Now

"The thing that we've been saying to founders is a variant of an old George Patton quote: 'A good plan violently executed right now is far better than a perfect plan executed next week.' In other words, cut hard and do it now. Time is not a friend to any of us. For all of you small, early stage, venture capital-backed companies: There will be huge opportunities on the backside of the ongoing meltdown, but your company must still be alive at that point to be a beneficiary!"

—Paul Martino and Eric Wiesen, Bullpen Capital

10. Identify What You Can Stop Doing

"Companies that create enduring value typically excel at discontinuing what no longer adds value. Be ready to make changes in cost structure that will least damage your strengths and will hone your value proposition down to what customers really value. Comb through your cost structure to create a contingency plan for what you would cut. Identify what's inefficient; what's nice to have but dispensable; what's there because of history, inertia, or wishful thinking; what may have worked in the past but doesn't anymore; and what isn't creating value as it used to."

—Michael Evans, Newport LLC

RELATED: A Guide to Venture Capital Financings for Startups

The post What Advice Are Venture Capitalists Giving to Startups in Light of the Coronavirus Crisis? appeared first on AllBusiness.com. Click for more information about Richard Harroch. Copyright 2020 by AllBusiness.com. All rights reserved. The content and images contained in this RSS feed may only be used through an RSS reader and may not be reproduced on another website without the express written permission of the owner of AllBusiness.com.

Are You Micromanaging Your Company’s Financial Tasks?

Posted: 23 Mar 2020 12:04 PM PDT

There are aspects of running a business many entrepreneurs would prefer to avoid, but they have to be done by someone. For example, 86% of small business owners take on at least one financial activity for their small businesses, according to a recent survey from QuickBooks and Kelton Global. Most (80%) business owners do this because they believe "they're the best people to manage their finances with the best level of accuracy."

But the truth is, taking on these financial tasks themselves costs entrepreneurs time and money—and leaves them open to run-ins with the Internal Revenue Service (IRS). Not to mention the cost of missed opportunities.

Are you micromanaging payroll?

Take payroll, for example. As business owners, we know that processing employee payroll and calculating payroll taxes accurately is always time consuming and often frustrating. If you get it wrong, it can cost you a lot of money and possibly get you in legal trouble.

The time it takes to do payroll and fear of getting it wrong are two reasons why 65% of small business owners, on average, wish they could completely outsource their payroll process.

Small business owners are always short on time. Imagine what you could accomplish if you had an extra 21 days a year to work on the parts of your business that really matter. Well, according the QuickBooks/Kelton Global survey, that's how much time business owners would save by outsourcing payroll: 4 hours and 52 minutes every pay period! And what's more, 63% of small business owners admit they never realized how much time they were spending working on payroll.

Other insights from the survey

Not confident: 33% of small business owners aren't "comfortable with the payroll process at all." 

It's hard to keep up: 79% of business owners say it's hard to stay on top of payroll tax laws. Partly, say 70% of business owners, that's due to the varying labor laws in different cities and states across the country, which makes doing payroll even harder.

IRS problems: 25% of the small businesses surveyed had problems with the IRS. Of those, 15% were audited and 17% were fined. The bigger small businesses had more problems: 40% of companies with more than 10 employees were audited or fined, compared to 14% of businesses with 10 or less employees.

Getting help: 81% of the small business owners who felt "confident" about the upcoming tax season use software to process employee payroll, and calculate and file payroll taxes.

Increasing cash flow: 72% of small business owners use automated payroll software, and of those, 73% say using the software has helped them "improve cash flow by maximizing deductions and keeping money in the business."

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Business owners who do calculate their own payroll are not exactly happy with the task, describing it as frustrating (49%), complicated (47%), and confusing (44%). And instead of doing payroll they'd rather be spending time:

  • Hanging out with family and friends
  • Improving their product or service offerings
  • Spending time with customers
  • Networking
  • Training their employees

The survey also did a deep dive into what areas of their companies small business owners are most concerned about. The top 5 are (three concerns were tied for fifth place):

  • Customer satisfaction—50%
  • Cash flow—49%
  • Taxes—35%
  • Hiring and workforce management—29%
  • Day-to-day administrative tasks—27%
  • Government policies & regulations—27%
  • Social media & marketing—27%

What financial concerns keeps small business owners up at night? The top 5 are (two concerns were tied for fifth place):

  • Not having enough cash flow to fund my business—37%
  • Having to handle all the financial admin/operational tasks myself—31%
  • Being unprepared for tax season—25%
  • Having to pay extra taxes due to lack of knowledge about deductions—22%
  • Not being able to hire the right people for finance/accounting jobs—16%
  • Missing deadlines for payments—16%

A lucky 23% said there are no financial issues keeping them up at night!

Perhaps a lot of these concerns exist because the survey shows small business owners are shouldering most of these financial tasks by themselves.

  • 77% deal with their lease/rental agreement.
  • 77% manage their cash flow.
  • 70% manage accounts payable.
  • 63% process their own payroll.
  • 60% manage payroll taxes.

These are tasks that can easily and affordably be outsourced. However, 45% of those surveyed say the cost of outsourcing these tasks is too expensive. And 34% "don't see the value of paying another company or advisor" to take on those tasks, while 34% don't trust anyone to put their business interests first.

When it comes to . . .

  • Managing cash flow (73%)
  • Dealing with their lease/rental agreement (70%)
  • Managing accounts payable (61%)
  • Processing their own payroll (53%)
  • Managing payroll taxes (49%)

. . . of small business owners think they're the ones who can complete these financial tasks "with the best level of accuracy."

What's the best use of your time?

I am astounded that so many small business owners don't consider how much time and effort working on these tasks consumes, time which could be better spent on marketing, sales, strategy, R&D, and more. I can't help but think that trying to do all the financial management themselves is the reason why their number-one challenge for 2020 is "growing my business" (attracting new customers, maintaining loyal customers, etc.). How can you expect to have time to work on attracting and retaining customers if you're busy calculating payroll and payroll taxes?

It's no wonder that business owners who do outsource these financial functions say they can spend more time focusing on their businesses (38%), and they can better prioritize other tasks that require their attention (35%). And 36% of small business owners who use automated payroll software say the same.

Micromanaging is all too common a trait among entrepreneurs. Too many think no one can do a task as well as they can. Simply put, that's nonsense. You didn't start a business to be an accountant or a bookkeeper. Instead take advantage of available software or outsource these tasks, so you can concentrate on actually working on the business you've invested so much time and money in building.

RELATED: Small Business Finances – Costs to Consider When Hiring a Bookkeeper

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