“Must do” guidance for grantees learned from the 2008 recession.
By Bart Burstein | Co-founder of Pace Able Foundation
HERE’S THE COVID-19 ADVICE WE GAVE OUR PARTNERS
Dear Pace Able partner,
On March 5, Sequoia Capital sent a letter to the companies worldwide they invest in. Sequoia is a well-known, successful equity investor in tech and other fields. News of this note has circulated widely, and it’s amazing how the issues they foresaw are starting to happen. If you want to stop and read it, most of my objective will be met.
Sequoia recommends swift, decisive financial actions. That if taken, may enable your company to survive. But if not taken decisively, it may not. This sounds dramatic, and is. That’s why I’m sending my personal request on top of this letter from an investor you may not know, from a different country and industry. Please consider the logic, the suggestions, and discuss if there’s any applicability for you.
I’ve seen the impact of taking similar advice – or not doing it – 12 years ago via two different company experiences. Sequoia issued similar advice at the beginning of the 2008 recession. That economic downturn had varying impacts on industries and geographies, but had a strong negative impact on the tech sector. Which in hindsight, may be minor compared to what the world is about to undergo – economically – not even in other respects.
At the time, I was an executive at a Sequoia portfolio company. For us, the 2008 slide show was a directive: make at least 15% personnel cuts and deeper expense budget adjustments. I did not accept the need for this, chafed at any suggestion to cut teams. From a human point of view – as well as continuing our business momentum – I wanted to be more cautious. To not disrupt plans immediately. I felt we could react in time, if needed. But more realistic heads prevailed. Or perhaps, the requirement of reporting back to our first investor was sufficient motivation. We made cuts, and the company weathered the downturn.
At the same time, I was Board Chairman of a European software company. The CEO heard about the Sequoia recommendations, and asked my advice. We decided they should be implemented, even though we had several arguments that the need was not as urgent for this company. In this situation I was able to, in hindsight, be more objective in advising on what should be cut, explaining and sticking with the need for an urgent implementation plan, and not letting agreed budget cuts slip back in after a few weeks. This company had to survive a prolonged period of downturned income, and perhaps a 3-5 year delay in reaching economic goals, and eventual trade sale. But it was sold successfully in the end.
The point of the above examples is probably clear.
What’s the relevance to your situation: business and customers in Africa, or elsewhere in the Global South? How will funders react – be they impact investors or philanthropies – that are not subject to quarterly/annual profit and loss pressure? I’m not an expert. Likely the reaction will not be to unilaterally pull back as forecast for “pure” for-profit investors. The deeper and longer this COVID-19 emergency lasts, the more impact it will have on your income sources: customers, investors, and funders.
There’s another important aspect to your – swift – reaction to this crisis. The impact on your stakeholders (employees, customers, community, owners, if applicable) and how you communicate to them. Although this memo is about survival, which must come first, in my mind.
Building your dream and attracting dedicated people to come along on the journey is hard. And harder yet to reset. I know. If the ultimate, pared-down need is to survive, you should be prepared to work on this need.
Without delay, if still with humanity and grace.