• Originals
  • 04 May 2020
  • 7 min read
  • Words: Northzone
  • Images: Unsplash

Learnings from navigating through the 2008 crisis

Early April, we brought together a selection of experienced investors and entrepreneurs to share their stories and best advice on how to navigate a crisis. Featuring angel investor and entrepreneur, Fabrice Grinda; co-founder and CEO of Clue, Ida Tin; founder and director of Zopa, Giles Andrews; and founder and former CMO of Booking.com, Arthur Kosten. Our panel of experts has seen its fair share of industry-shaking events, including the 2000s dot-com bubble and the 2008 financial crisis. They’ve also witnessed the birth of dozens of new multi-billion dollar businesses including WhatsApp, Spotify, Uber, Airbnb, Dropbox, and Slack, proving there is opportunity despite challenges. 

Led by Northzone General Partner, Michiel Kotting, we discussed how the coronavirus crisis is different from past economic downturns, what contingency plans and areas of focus should look like both short and long-term, and what common mistakes entrepreneurs can learn from and avoid. 

Here are six key takeaways from our conversation, which you can read in full here.

 

1. Timing and prioritising are essential

We’re in a crisis, that’s a fact. And while it’s unclear how deep or how long this crisis will be, there are certain steps all entrepreneurs should take immediately. The first priority is extending your runway. Fabrice Grinda recommends aiming for at least 24 months. 

Entrepreneurs need to be aggressively conservative from the start. Set up a meeting early to redefine your goals, KPIs, and your definition of a great product or service. Take a hard look at what’s broken, trim the fat, and prepare for the worst while hoping for the best. 

Towards the middle of the crisis, companies can resume looking at new opportunities. This will set you up for long-term survival, and even growth. 

2. Get your costs strategy in order

Often, during a bull run, problems are solved with cash. If you’re not growing fast enough, you raise money, spend freely, pay up for talent and customers alike, all on VC dime. When capital becomes scarce, this doesn’t work. 

In these times, survival effectively boils down to costs. Costs trump sales. Costs trump marketing. Costs trump spending of any kind. 

Arthur Kosten suggests going team by team, employee by employee, activity by activity and asking yourself, however painful the process, if each is essential for survival. If the ROI isn’t there, you’re better off cutting those costs. Giles Andrews agrees; some kickass teams only thrive in a certain game, and unfortunately, that game is on hold. If you’re concerned about contracts, Fabrice Grinda affirms that in desperate times, every contract and lease can be renegotiated. 

As a leader, you can set the tone by cutting your own salary to zero, and everyone else’s by a set percentage, for example, 30%. This leads us onto the next point… 

3. Don’t underestimate the power of unity and transparency

Creating a single goal and unifying a company through transparency and enthusiasm can work wonders for your survival and success. Sacrificing your own income and uniformly cutting the rest of your employees’ salary creates the kind of solidarity that can get you through. So will being 100% open with your management team, making sure you have a plan everyone can believe in.

If layoffs are inevitable, Fabrice Grinda suggests doing so in one swift, transparent round to avoid excessively affecting morale.

4. Keep nurturing your relationships 

While the timing may not always be right, maintaining relationships with investors and potential partners may be your secret weapon. Pre-seed and seed investments will undoubtedly be more attractive than Series B or companies with heavy burn rates, but that’s up to VCs to decide, and it will be clear when they are prepared to start investing again. 

Furthermore, you may find a number of potential partners struggling to distribute their product in these times. Giles Andrews reminds us that some long-standing, important relationships are often born out of necessity. Keep in touch and wait for the time to strike a deal that will turn the tide. 

5. Be realistic, and accept that there are many unknowns

At the end of the day, there are several elements we simply cannot know. How long will we be in quarantine? How long until we find a vaccine or treatment? How long will the economic effects last? Luckily, the smartest people in the world are on the case, and central banks and governments have learned from prior crises. 

That said, Ida Tin highlights that public programmes are often complex, opaque, and off-the-mark. It’s worth monitoring them and cashing in when possible, but it’s even better to focus on what you can control… like costs. 

In addition, Arthur Kosten warns entrepreneurs of cognitive biases that may thwart their decision-making: optimism bias and loss aversion. While it is often said you don’t become an entrepreneur unless you’re highly optimistic, this same quality can prevent you from properly preparing for the unknown ahead. As for the money you’ve already poured into your company, consider it sunk. It’s important to detach yourself from those investments and focus on survival so you can hit the ground running when the time comes.

6. Look for opportunities and be inspired by past successes

Looking back, some of the most interesting companies of the past decade arose from the last financial crisis. This is not a coincidence. Once you’ve locked in your costs strategy, kept your workforce motivated, and cultivated your connections, let your creativity run wild. 

Analyse what part of your business is still growing, even without your marketing spend. Be braver around your pricing and open to learning something new. When the time is right, take advantage of diminishing competition — not just in the market, but also in talent, customer acquisition, online marketing, and more. Reach out to partners who didn’t want to talk to you before, but see things differently now that your unit economics are stronger. 

If our collective experience is any indication, this very crisis may be the time you look back on and realise it’s the moment you made a difference. At the end of the day, if you’re safe and healthy, this is simply the kind of challenge that made you become an entrepreneur in the first place: to overcome a problem that isn’t easily solved by someone else. Enjoy it.

 

About our panellists

Fabrice Grinda went through the 2008 crisis as an angel investor, and the dot-com one as an entrepreneur. He’s tallied over 150 exits on 500 angel investments, including Farfetch, Uber, Dropbox, and other investments across Europe and the US. 

Ida Tin is the co-founder and CEO of Clue, the world’s leading science-based and trusted female health and period tracking app. A lifelong entrepreneur, she previously led motorcycle tours around the world and published a book about her experience, “Direktøs,” which became a Danish bestseller.

Giles Andrews is the founder and Director of Zopa, the world’s first peer-to-peer lending business. Zopa has now made over £4bn in loans to consumers, with over £1bn lent in the last 12 months, while winning numerous awards for its outstanding customer service.  

Arthur Kosten is one of Booking.com’s founders and former CMO from 2003 to 2012. Since then, he’s investing in late-stage marketplaces, including Catawiki, Healthecare.com, 3D Hubs, Planday, Festicket, 8fit, and Deskbookers, among others.

Michiel Kotting is a General Partner at Northzone, focusing on SaaS, marketplaces, healthcare and AI. He leads Northzone’s investments in Personio, Spacemaker, Kahoot!, Medwing, Disperse, Catawiki, FreightHub, and Aidence.