start-up

Surviving the Economy as a Start-Up

By Mark McClain

Are you leading a new start-up? Were you just finding your footing as soon as COVID-19 hit? Do you find yourself struggling to balance the books as the pandemic carries on? If the answers to any of those questions were yes, then first, I would just like to say welcome to entrepreneurship. If you had not already felt the pressure before, I am going to safely assume you feel it now.

When my current company began to take shape in 2006, the dot-com bubble was still pretty clear in the rearview mirror, and many entrepreneurs were still reeling from its effects. By mid-2008, we were well on our way to success but probably had fewer than ten, maybe fifteen customers.

Then, the mortgage crisis started to crack open. Sequoia, one of the Valley’s biggest VC firms, did a fifty-six-slide presentation titled “R.I.P. Good Times,” and soon everybody was on the doom-and-gloom bandwagon. We were being encouraged to do layoffs to weather the storm. We had somewhere around 30 employees at that point, and our board wanted us to cut a third. It was the only time I’ve taken a very tough, “not-doing-it” stance with my venture team. Instead, we opted for another approach, which involved some amount of sacrifice for all of us, instead of tremendous sacrifice for some of us.

The lesson I took away from this particularly challenging start-up scenario? Shared pain is often the key to long-term success. We were at such a critical point, we just couldn’t see trying to “step on the gas and the brake at the same time”. So, instead of taking that drastic action, a move that would have certainly crippled our business, we chose to give everyone a 10 percent pay cut.

Following that, we got enough customers over the next three quarters to keep the bills paid. And from that point on, we started to accelerate growth again and just never looked back. It happened because we opted to share the pain, not inflict it on the people who got us through our initial market entry. And ultimately, the stock options we gave our early teammates was way more valuable than the 10 percent they lost in salary in the short term.

Call me a hopeless optimist, but I believe that when you do the right things, everybody wins. I love all (ok, most) of the “money people” I’ve had the privilege to work with over the years, from VC to PE to institutional investors. But there’s a danger at the end of the day that comes with seeing things only through a spreadsheet. A company is really just a group of people, working hard to make other people’s lives easier, better, whatever. Sometimes, we’ll hit some really difficult terrain along the journey. Sharing pain, working together as we “run through the storm” allows us to do the same thing for each other. When we build that foundation of teamwork, we’re far more likely to succeed in the long run. And, that’s good business.