When the bottom got unhinged during the Global Financial Crisis of 2008 (GFC), a new framework saw the light of day, and the acronym VUCA rapidly gained currency to punctuate business conversations. And now, “we have a VUCA Playbook”, as Girish Mathrubootham, the Founder & CEO of Freshworks says during his tete-a- tete (read Outliers Podcast) with Pankaj Mishra, the CEO of Factor Daily. This is a fresh season and yes, you guessed right — the season of RESILIENCE!
If there’s great anxiety right now then it’s understandable — the unanswered questions are piling up by the hour and all we see are nervous looks cast sideways. And, we needed somebody of the stature of Girish Mathruboothan to put our nervousness to rest. He is highly respected in the tech industry and it’s not only because his company, a SaaS-based one, is a Unicorn, there’s also great foresight in the man and it goes beyond business circles.
He believes, and he is so right, that we are the fortunate ones. Migrant workers and the unemployed lot had a raw deal when the pandemic struck, and they continue to remain vulnerable, whereas many in the industry are lamenting about diminishing revenue growth. While the situations may be vastly dissimilar, but the plight of millions of people the world over is heart-rending. That, in itself, should give us a deep sense of gratitude and courage to face a topsy-turvy world.
We’ve seen crisis before — dot com bust, GFC, et al — but never have we experienced global supply chains being crippled to this extent. The severity of impact back then had remained limited to certain geographies or it affected only a certain kind of people. This is the first time when all the 190-odd nations have been impacted in varying degrees.
The virus is not likely to go away anytime soon and the galloping count of infected people is putting immense pressure on a crumbling healthcare system in most countries. It brings immense relief to know that the curve is flattening in some geographies, but as Girish says, “Founders have to prepare for very difficult times ahead”. The strains of this virus are unpredictable.
How to Address an Existential Crisis?
Unarguably, the last big recession that we saw was the 2008 GFC and though the situation is vastly different today, our learnings are borrowed from what we figured out in hindsight, back then.
There are great uncertainties and ambiguities on how Q2 FY 21 will play out. Between what we can intelligently predict now, vis-a-vis the outcome, we can expect massive volatility as well.
“We are living in a situation where we don’t know enough about it, and we also don’t know what action will drive what kind of results”, says Girish animatedly.
“We mustn’t get carried away, and we should focus on the controllable factors — spending, in these times”, he adds thoughtfully.
It is often said that some great companies were built during a recession, but it’s important to know what exactly they did to achieve greatness.
For the last ten years, we’ve seen bullish sentiments all-round, symptomatic of hyper-growth trends, massive funding rounds, and a sense of positivity in general which can have a lulling effect on the senses. To reset this high-growth mindset to one of survival is the need of the hour, but it’s very difficult to make such a quick revision when in the last 10 years one has not experienced a recession.
A lot of founders continue to live in the past (read growth mindset) and are yet to transition to survival mode, living on hope that things will pick up soon. For them, Girish has a piece of advice — please do so RIGHT NOW! Admittedly, startups cannot be bucketed as one massive monolithic structure as they are all in different stages, but SURVIVAL is paramount for each one. At this point, it’s NOT about aiming or revenue growth and hiring great talent – the very same priorities which may have been on the calling cards four months back.
Once he addressed the “What” it was time to look at the “How to” aspect of it.
”Make a detailed survival plan for 24 months (if possible)”, he advises. “How do you protect your existing revenue streams, knowing that cash collection will be challenging? The most important thing to do right now”, and he minces no words, “is to get out of the fantasy of a growth world and adapt quickly to a survival mindset.”
Is This The Time To Throw in the Towel — Strugglers & Newbies?
Some people may have been struggling greatly even before the pandemic struck, while there may be others who’ve just started and can see little hope with no definitive list of prospects. Should they call it quits?
Girish insists that to answer this question he needs to know the exact fund position. Be that as it may, he’s willing to offer a generic view.
“Now is not a great time to sell your company”, he asserts.
The pride of a successful founder gleaming in his eyes. He proffers a simple logic — who would want to buy now, and valuations are going to be very low, even if one finds a buyer. Why not wait for a bigger exit?
Having said that, he also lends a helping hand. If one has the money to survive then that should be the only focus and it should continue until better times are back. No one could have foreseen this situation 6 months back and based on the market conditions then, a hiring spree may have resulted. Today with rapidly diminishing revenue, organizations may be straddled with excess manpower and it’s always very painful to let go of talent.
Right-sizing is a traumatic experience, but that call has to be taken right now and one shouldn’t be under the illusion that things will look up in June, July, or August, etc. It’ll be simply great (for all of us) if it does — but what if it doesn’t? By then it may be too late to save the company.
“Hope for the best but prepare for the worst” is his candid rejoinder.
We have no clarity whatsoever on the virus — whether we are likely to see successive waves, etc. We don’t know what kind of impact it may have on business sentiments, so we must prepare for the worst to the extent possible. The company has to survive — that’s it!
It’s decided we’re going to survive, no question about that. How do we go about it, then?
The priority should be to have a runway for at least the next 18–24 months or to the extent possible. Not too many VCs are investing right now. Whatever you see around are mostly about meeting earlier commitments, made just before COVID struck. You may be feeling cornered now in the final stages of negotiation where the VC is playing hard and insists on a Board seat.
“Give it to them”, says Girish rather magnanimously. In dire conditions where one may not have more than 3–4 months of cash left, this is the best bet. Once again, he remains emphatic about the company’s survival over everything else. There are market feelers that valuations may drop rapidly. VCs are not necessarily an opportunistic breed always, and like everyone else, they have to stay afloat too. The question is who blinks first?
To make the framework easier he created two buckets for very early startups — one for those which are in the pre-revenue stage and others with revenue.
For the first category, he has a simple piece of advice — do whatever it takes but use the next 6–8 months to build the platform/product as best as you can with the resources available. Having a very small team and foregoing salary, are all part of the deal. But there may be early startups that have a high cash burn rate and are heavily reliant on VC money right now. They have to figure out how to stay afloat with a skeletal team, based on the funds available.
The second category must focus on protecting their existing revenue streams and be cognizant of the fact that there may yet be significant leakage that has to be factored in. Once again — focus on survival. In new deals too, expect cancellations, so it’s critical to identify the pockets where customers are still buying, and go about obsessively, to service them.
Freshworks at War
The crux of it, is in his own words: “How do you throw away your old plan and quickly re-orient the entire company with a new one? That’s a hard problem”.
When the year started (Jan), an annual operating plan was sketched out, based on a healthy growth rate. Naturally, additional talent requirement was also factored in. In their case, it was to be 900–1000 additional people. Till March, no one had any clue about the devastating impact that the pandemic would cause, so they went ahead and hired 300–400 people. 470-odd positions are still vacant and hiring has frozen for now, except for some of the key positions.
In November last year, they had closed a healthy round of funding valued at 150 million dollars so the cash position is safe. Even then, the team went into overdrive with the Founder CEO at the forefront communicating over Zoom to all 3000 employees that the old plan was no more tenable.
A new plan was worked out — the topmost priority was about saving every single job and even those of the outsourced staff (350) who were dependent on Freshworks’ businesses for their livelihoods. It’s almost akin to a Duckworth-Lewis kind of a situation in Cricket. Even though you were cruising earlier, but the new run-rate has completely overturned the earlier plan.
They cut down on spending drastically including travel costs, field marketing expenses, digital marketing spends, etc. Hiring was paused and so were the merit increases. Again to take a lesson from a very healthy company with an adequate cash reserve — when revenue is on a slippery slope then focus on survival and slash away costs proportionately.
A war-room was set up and the real-time data was monitored ruthlessly by a team of experts, to chart out the next course of action. The good old gut-feel was encouraged too, simply because the data points were changing drastically and one had to rely on experience as well.
The other thing they continue to do very well is to be on a constant lookout for positive momentum. Continue to focus on areas where you see traction and take them to a level to create a differentiated strategy by the time the crisis is over.
One has to realize that it’s a humanitarian crisis. No one is at fault here.
It is the time to stay together and leaders must use this opportunity to reach out to their teams and communicate with a great deal of empathy. Diverse teams may have a different set of challenges and only when you talk to them do you realize the full impact of it. That’s the first step towards building positivity. Many companies use this time to tighten the belt and minimize wastage.
As Girish says, “Pain is inevitable but suffering is optional.”
The only thing that Founders have to always bear in mind is the detailed survival plan. Without it, nothing will work. An honest intent is always recognized, appreciated, and supported across the organization. There is no other way to make it easy than being truthful.
In reality, managing a high-growth phase can also be incredibly stressful especially when one has to right-size. These conversations can never be comforting and yet, leaders have to do it. Always remember, the company is bigger than individuals, even the CEO. The challenges in a growth phase may be different but no less consuming.
“Staying sane is a decision,” says Girish.
The time saved in commuting or business travel can be effectively used today to do so many other things that one loves. As individuals, we have to find our reasons to stay positive and be happy.