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  • 04 May 2020
  • 35 min read
  • Words: Northzone

Transcript: Navigating through an economic crisis: Learnings from 2008

Navigating our way through an economic crisis: learnings from 2008 

Michiel Kotting  I guess it’s a reflection of the uncertainty, we all feel but also the belief we have that great companies can be built in a recession. And it’s good to hear from people who’ve done so before. I guess most of you probably will have heard a lot in the last few weeks from VCs around recommendations, whether it’s through the board or through all kinds of emails, but we felt that the best advice is actually from people who have blood, sweat and tears experience on the ground. And therefore we have an amazing panel here. And let me just ask them to introduce themselves and tell a little bit about a previous experience in a downturn.


Fabrice Grinda  Sure, I’ve kind of lived through all the different experiences, I built my first company in the bubble days and then sold it towards the tail end of the bubble. Though, kind of sold to someone whose stock fell 99.98%. lost everything. So then actually lived through that part but then decided to go, I want to be a tech entrepreneur in 2001, post the bubble bursting, and we’re gonna build a mobile content company. And at that point, every direct consumer company had gone under, every telecom company had gone under. And so by the time I called a VC, and those are VCs that have been throwing money at me a few years earlier, I’d raised 63 million of venture money, I was 23 and I had  150 employees and so I started a new company. I had to build a company the old fashioned way, basically use every last penny of savings I had. I raised over two and a half years 1.4 million but I raised them in 5000 increments every time I would meet someone I was like ‘please would you be interested in investing this extraordinary company?’ As a result, I miss payroll 27 times I would always tell my employees oh I don’t know what was wrong the bank the wire etc. I lived in New York essentially on $2 a day for two years I lived in the office, I slept on the couch, I was showering at the office and borrowed $100,000 on my credit cards. I was basically completely bankrupt but ultimately grabbed victory from the jaws of defeat and became profitable and so built the company the old fashioned way with profits. Two and a half years of literally living the opposite. I couldn’t even afford coffee. The only meal I could afford was like ramen noodles and, but ultimately made it and at the benefit of enforces, we had no competition. No one’s trying to do what we did and ultimately the company grew from 1 million in revenues in 2002, to five in 2003, to fifteen in 2004 to 200 in 2005, and I sold it very successfully. And then the next company after that was kind of the opposite position. And when the crisis hit, we actually had like $80 million in the bank, and realise that all of our competitors had no money, they were all going bankrupt. I think we made 13 acquisitions in that time period, mostly for stock but a little bit of cash. And actually were able to spend more money and take advantage and so two completely different setups in two different positions in terms of what needed to happen, but both were really interesting and set the stage for future success.


Ida Tin  I started building Clue in 2009. So sort of coming out of the crisis, but I will say this is our first sort of global financial crisis that we’re living through. There are many crisis in building a startup for sure. So we have managed many time crises, but not the economic one. So I’m happy to talk about that, but sort of on a global scale. This is probably the first global sort of environment where we really see that impacting us in a massive way.

We only really started raising money in 2010. I wasn’t deep in the tech community at the time I started. So I was probably less aware that there was a tech prices bubble going on. I mean, of course, it was financial beyond that, but you know, one of the big benefits of being fresh is that you don’t know all the things you could know. So I just went ahead and started like I did. I didn’t worry about that at all. If I were to start a new company today, I would be a lot more worried about global financial movements than I was back then.


Michiel  Maybe Giles, over to you now. A loans company in a financial crisis. How is that?


Giles Andrew  Well, interesting, I suppose is the best way to describe it. So we started the business in 2004. And that was quite an interesting time to start a technology business because the big VCs had not done a deal for three years. But the big, the good, well funded ones, were sitting on a reasonable amount of dry powder. So there was an appetite to start funding ambitious startups. That sort of started in 2004/2005. So we were lucky with our timing there we rode that wave for funding being easy to access. And we invented something called peer to peer lending, which has been copied all over the world. 

Actually, the 2008 crisis was the making of the company. So we’d had three years of what I can only describe as modest growth going up to the crisis, but we’ve done one thing quite smartly, which was make both conservative credit decisions so that as we went into the crisis, we had a surprisingly high quality loan book. And when consumers saw the value of every asset they held falling pretty precipitously, arguably not as precipitous as they did two weeks ago, but at the time, felt pretty precipitous. So stock markets were crashing, property markets were crashing, banks were going bust, the value of debt was crashing. And they were looking at their portfolio. We didn’t have that many customers, but we’ve done a reasonable amount of lending. And their portfolios look really strong. 

So rather unintuitively, perhaps we had capital inflows rather than capital outflows. So for a while we’ve been struggling to get enough capital together to lend, we’d always been well funded from a sort of working capital equity point of view. But from a lending capital point of view, we’ve been short of money and we saw money coming in. And if you are well funded in a crisis, you can build a really interesting lending business because everyone else stops so you get the chance to pick the best loans. So the portfolio of loans we wrote, you know, 2009/10 was really high quality. 

And I think given what I politely described as modest growth between 2005 and 2008, I’m not sure we’d have survived. And since I’m not sure we’d have been fundable yet our business tripled in 2010. 

Coming out of the crisis, now, every crisis is different. We were way smaller then, you know, we lent over a billion pounds last year. So we’re a different order of magnitude of scale, going into this crisis, to going into the last one. But I think the same is true that if you are well funded, and you don’t have investor flight, which makes you do the wrong things, if you’re not forced to effectively liquidate portfolios at the wrong time, then the crisis can be a very positive thing. But ask me again in a year’s time. Certainly I wouldn’t say I’m relishing it or rolling my sleeves up in anticipation. But I think that it certainly will sort itself out, there will be a Darwinian moment there will be survival of the fittest, but the businesses that survive and do well, we’ll definitely look back on this period as a catalyst of growth, not least because competitors stop and customer acquisition costs go down. 

And you have the ability to pick distribution partners. So for example, money supermarket is a big aggregator channel in the UK is responsible for enormous number of introductions of loans, pre crisis, they weren’t interested in talking to businesses like us. They got all their money from the big banks. We go and pitch to them and they say, why would we upset our customers by working with a startup that’s trying to disrupt banking? There was a particular day when Barclays Bank pulled a second charge mortgage product from the market. And that mortgage product had contributed 30% of Moneysupermarket annual profits. They issued a profits warning on the day saying we will disappoint the public company, we’ll just put the market up because our biggest single product has ended. So suddenly they become receptive to the scrappy startup who says, Listen, we’re going to lend through the crisis so since 2012, we have been the number one loan player on moneysupermarket in the UK. So the tables turn we are now way bigger than Barclays Bank is to moneysupermarket, but you build that relationship from the depths of the crisis


Michiel Maybe let’s take the first step of seeing a crisis is arriving, and realising how deep it is and realising what in your business is broken or isn’t broken or what is broken in the environment. How did that kind of happen in the previous times? Was it pretty clear from the get go? Or are we in for a bunch of surprises here?


Giles I think it’s pretty clear what’s broken. I think what isn’t clear is how deep and how long. So in life, timing is everything. You don’t want to dive in while the world is still in chaos, so you need to sort of I mean, none of us calls tops and bottoms of markets, although it sounds like Fabrice called the top of the market when he sold a business very well. But that’s, you know, that’s hard to do. Calling bottoms is probably as hard as calling tops. But I don’t think you want to pile in, because you need to be the strongest and not feel like you’ve run a marathon coming out of it. So, patience, I think, but I think it’s reasonably clear what’s broken. I mean, there’s no liquidity. There’s a potentially a, you know, consumer credit crisis that lots of consumers will struggle to repay loans. So I think that’s pretty clear.


Michiel And in terms of underlying business models, what used to work in your company and it doesn’t work anymore post a crisis, how long does it take to figure out how these things are? what’s going on there?


Fabrice I think the reality is your underlying value proposition hasn’t changed, right? So if you had good unit economics before the crisis, and obviously, we’ve always been economic driven, and we can talk about what good unit economics are, even though there may be a time period during which your revenues saw or stopped, which, like right now, your value proposition hasn’t changed, for the most part, often it becomes more compelling. The, if you take a step back at maybe a more macro level, what I love about startups and technology is that it’s inherently deflationary makes things cheaper, and therefore increases people’s purchasing power and improves the user occurrences right, like people’s broken user experiences at high margins are our opportunity and so that becomes even more compelling. But to Giles’s points, we don’t know how long the crisis is going to last so we don’t know how much of a downturn we’re going to face. And so it’s normal that we all retrench like cash burn as much as you can.

We always have 10-15% of fat at the very least, that we can let go. 

I would do only one round of layoffs, if you’re going to do it, because if you do multiple, you create a morale issue, and cut as deep as you can to the point where everyone else is going to be stretched. And this is the point where the best companies are going to be made. 

And you need to extend your runway. The problem also is there’s an element of luck, right? If you were kind of cash out just when the crisis is about a hit, you’re probably have no money or very little money is being raised unless you happen to be in the sectors that are benefiting or if you’re in the sectors that were if you’re an extraordinary company, and by those are like 1% if you just raised money before the crisis, you’re in an extraordinary position. You actually have a much lower customer acquisition costs, you can buy competitors but definitely extend your runway. make sure that that cash is gonna last for 24 months. It’s also a lot easier for you if you’re an earlier stage company. 

If you’re seed stage and you are doing 100k a month GMV. If you’re in a marketplace and you have a 15% taker, your net revenues is 15k, on which you have a 66% margin, you’re making 10k a month that goes to zero, it doesn’t change your burn by anything except 10k. it’s very easy for you to cut your burn by at least 10 k if not a lot more. The problem is if all sudden you’re a 10 million a month company and you were making a million a month in that net profit and that goes to zero, the cuts you have to make to cut you may cut your burn dramatically and still having that burn increases. So I’d say Today’s the best time of the world to create a company do this and you can get it funded for the next 18 to 24 months. And if you’re an early stage startup and you have cash or you can raise cash, make it last for a long time. You’re gonna be an amazing position. It’s the problem is if you need to raise now, I mean if you have to raise now, chances are you’re going to die. Right and that is for many people. That’s 25% of the portfolio if you’re a VC. it is what it is. 


Michiel so Arthur, luckily we got you back in and maybe you could do a brief intro about yourself and your experience in living through the previous crisis, especially in a travel company


Arthur Kosten  Although the times were not as bad as now for travel companies so my backgrounds different and I was one of the founders of a company called bookings portal that was like a meta search agency a little bit like kayak and trivago now but then much less on price comparison that we bought a small Dutch LTA bookings.nl and, you know, gradually build it up to booking.com, the world’s leader in accommodations and I served as a CMO 10 years from 2003, to 2012. 

And during that time, we had a couple of crisis some some really bad. So actually a really bad one was just before I started, it was the company still had a bit of scars from 9/11. And I think in 9/11, everybody thought, Okay, this is the end of the world as we know it. And what was surprising at least in bookings.nl, and you know, the company rebounded in about a month. So, one month later, when everybody thought, like, the world’s never going to be the same anymore, basically, business was back to normal. So that was a good lesson in the crisis. 

I lived through the 2008/2009 crisis, but you know, luckily, our company was super profitable at a time and growing really fast. So we had a position of strength and, and could live it through really well. 

There are a couple of cognitive biases that are really, really harmful for entrepreneurs. So one is an optimism bias, you don’t become an entrepreneur unless you are highly optimistic. And that’s sometimes, you know, I catch issues. So a couple of entrepreneurs that I spoke to that I invest in their companies came back with, you know, the worst case scenario, that they’ll have two months, two really bad months, half a bad month, and then everything would be back to normal. That optimism bias doesn’t help you in a case like this. 

And also, there’s another one is loss aversion. So a lot of people have spent so much of their time and effort and money to build this kick ass team and company where it is. And I always tell them, you know, basically that is now sank off, you know, you have made this cost, it’s going to be super painful. But you know, you have to look at it as if you didn’t make those costs, detach yourself and make sure you just basically survive. A lot of the companies that will do really well past crisis are simply the companies that get through, not necessarily the best companies, just by surviving the crisis you’ll be in a good position. And I think hopefully, you know, during the crisis, though there’s a risk that companies will be too conservative. They think like, oh, man, the crisis will never end. And, and then it’s time to get the optimism back and prepare you to to make the best of the crisis.


Michiel So basically at the beginning of the crisis, you need to be very aggressive on the sort of more conservative side, and then towards the end of the middle, you need to start going to taking care of opportunities again. I guess that really requires a meeting early on in the crisis of the goals you’re setting, KPIs, you’re looking at your judgement of what great looks like. So how do you think companies need to do that and what is needed internally to get that going rather than say, Oh, we expect the 20% shortfall the three months apart times, but really looking at the different business in a different light.


Giles The job of leadership is then to paint a really simple goal. And it’s either we need to be here in two years time without raising any money, and therefore all the metrics are around how do we guarantee we’ll be here in two years time, which unfortunately, probably means focusing more on the cost side than it does on the revenue side. 

Or it’s, we’re never going to be able to raise money again. So in our case, it’s over. We said, right, we will never be able to raise money again. We need to be profitable with what we’ve got. And that’s a pretty simple project to enrol a team into. And it’s not the most sophisticated, but it’s wonderfully clear. And I think then the job is to incredibly transparently present to your team, how you’re doing it against that one overarching goal. And I think that can be extremely motivating for people.


Michiel And if you’ve got to talk about survival, which is obviously a very big goal, and then the people in sales say, well, you should cut everything, but sales because we’ll bring in the money. Products say, well, we need to clearly survive through having a superior product. And the people in customer success will say, well, we need to keep our existing clients etc. So how do you how do you kind of sort through that and say, What is essential for survival?


Arthur I think a very interesting perspective is to really look and and have a look almost, you know, team, by team and even person by person and activity by activity. You know, what, what would happen? If we wouldn’t have this? You know, would we survive if we didn’t have this? And, and if you, you know, especially a lot of companies that have been through this growth period with an abundance of capital, have usually been very, very bloated. And I think it’s reasonable to have a look at it and say, okay, yes, it will be painful if we don’t have this kick ass team anymore. But you know, what, what would it really mean? And is it essential for survival? And also, this is a great time to to have a division between missionaries and mercenaries, like, Who are the people that are with us for the long term who really believe and who are the people who just joined the hunt, because we have the nicest office or the best perks or the nicest chefs, or the highest pay? And I think sometimes it can really help and review and say, Hey, what are you gonna do to help us survive. What is the ROI on you and your team in the real short term?


Fabrice And by the way beyond letting people go, I think there are no secret caps. Every contract you’ve signed can be renegotiated. Every lease you signed could be renegotiated. I think right now, I don’t think anyone was paying rent in for the next few months in New York. I’m not even sure that the landlords are expecting it and what are they going to do kick you out and get no one in return? The people could be a lot more aggressive with their suppliers than they think they can be. And quite frankly, even within the company, you can say, look, we will take a 30% salary cut, all of us, and for the good of the company. And frankly, to Giles’s point, if you create a single goal, we need to get to profitability we need to survive, you can actually unite people around that and when you actually say we’re all making a sacrifice together, and especially as a founder if you’re in a position to cut your salary to zero, which some are. I think you do and you lead by example. And you actually create a tighter knit team that has a stronger sense of purpose. And there are many more options available to us than just cutting people, but obviously it’s probably part of the solution


Giles And onto author’s point some of these kick ass team you’ve hired are only kick ass in a certain game, and you’re not playing that game anymore. And most people will realise that their strengths shine in a well capitalised environment where they’re trying to beat a competitor and outspend them or produce a more efficient marketing channel which is by the way just disappeared. So I think it’s very much looking around person by person, to 1. trying to assess attitude, who is in it for the long haul, and 2. what are the right skills. You want a bunch of people to get their hands dirty more than, you know, the finest channel manager for a channel that simply doesn’t exist anymore. Surprising, it’s surprisingly easy to make those kinds of assessments.


Ida Maybe another thing to bring into the conversation is what’s happening at least in Germany around public programmes to support various, you know, the corporates all the way down to the startups. Because I think one of the hardest decisions is to figure out like, you know, when is the time to potentially do something dramatic if we need to, and one of the, I think big unknowns, a, where we are in Berlin is, you know, what kind of programmes are actually going to be in place and what’s really going to be helpful because of course, you don’t want to, you know, do anything dramatic and then a month later, there’s like, Oh, yeah, we would have been totally fine doing this thing. And I think the communication around these programmes and how banks and other institutions are actually sort of set up to administrate this money has been pretty messy, you know, all the way down to technology breaking. So I wonder if if there was any learnings that any of you might have had around, sort of, you know, the venture market, we can sort of we can sort of understand what’s going on, we can kind of understand other of the sort of traditional financial instruments that we might have had at our service. But these new public programmes are sort of seems like a big unknown. 


Fabrice I think that’s the question someone asked on the chat, what we’ve seen in the past is that governments are not really good at setting them up. And they’re often reasonably complex to obtain and the amount of money you obtain or not is not that large. I mean, one of our companies just applied and I think their cost structure, whatever, they would lose a couple hundred thousand a month and they got one loan for $10,000 by the local government. I mean, it doesn’t change, it doesn’t move the needle for them. And also the people that are best positioned typically to take advantage of these programmes are the ones that are best politically connected. So I suspect that, you know, somehow the Volkswagen workers are more likely to be in a position to capture a lot of these subsidies than a startup. So I would operate with the assumption that you’re not going to get anything and if you get it, it’s not going to be a lot and it’s gonna be difficult to get. So I would not wait to make the cuts. And our past experiences has been that the people that focus on programmes get very little.


Giles I mean, I would agree with that. I think it also varies country by country, so I chair a business in Germany, where I think the employees packages are actually reasonably understandable and seem very supportive. So I would advocate using them wherever possible. But not to the extent that you’re relying on them and not to the extent that you postpone difficult decisions because they may never come through. Certainly the loans programmes, and I’ve more experience in the UK, the loans programmes in the UK seem incredibly challenging. And it’d be dreadful if someone held off on the hope of getting a loan and then they’ll go bust because they never got the loan. That would that would be an absolute tragedy.


Michiel So the cuts are one clear measure to take, are there any other things you recommend people to do very early on during a crisis?


Giles Stop all discretionary marketing. Most businesses get some incoming business anyway so try and figure out what that is. And I think the only way you truly find out is stopping everything and then build up very steadily from there, in the same way you did when you launched the business. So test and learn, but from a basis of zero. I absolutely echo what Fabrice said, that every contract is up for renewal.


Michiel And other than stopping spending, is there anything else you’d recommend early on to do?


Fabrice As a leader, if you can afford it, cut your salary to zero, I’d maybe cut everyone’s salary by 30%. To me, it’s more your revenues and many people now have zero revenues, literally. I mean, we’ve seen some companies where the revenues fell to zero And so it’s very clear what your burn is your burn is your monthly cost structure. This is the only thing you have so totally echoing Giles’s comments – marketing to zero, spending to zero, sales efforts to zero. And it’s all about what can you do to extend cash runway right now. 


Michiel And things around pricing, specific things around customer retention. Is there anything there where you would tinker a little bit with the existing model? Or do you say, just focus on the cost side and first see if the market picks up on your on your specific service?


Fabrice The problem is, the answer is always it depends, right? What’s your core value prop that’s changing the price, what is the elasticity of demands? My intuition is that if your value prop is compelling before, it’s going to remain to be compelling, whether it’s now or in the future. Just make sure you survive to see the future. 


Giles I think it’s unlikely. Given that revenues are falling off a cliff, it’s unlikely. And that means the unit, the number of units you’re selling is falling off a cliff, it’s unlikely that changing pricing is going to have much of an effect. You might want to do some testing into pricing with a bit more bravery than you did before, because there’s less competition around. And you might learn something – that you under priced your product before, great. But I wouldn’t bet on that. But you can potentially test around your, your value proposition a little bit more given that you’re not risking so much by doing it.


Michiel And so, you’re talking about, kind of how did you see the crisis coming, what did you do early on. And if you look at the statistics of fundraising, there’s sort of a trough in fundraising. It’s maybe a year after the initial crisis, I guess there’s companies trying to raise quickly, just after the crisis happens, or internal funding rounds happening to make companies survive. What are the sort of the signals that it would be possible to raise again? And what is the kind of timeline you think people should be thinking about? Yeah, I heard someone say 24 months without any access to capital. How should one read the tea leaves? 


Fabrice The unknown here is how long will this last, how long will we be in quarantine? How long until we find either an effective remedy or a vaccine and the economic activity comes back to normal? 

And you can make a range of predictions somewhere between two months and probably 18 months. The problem is we don’t know, it’s a probabilistic distribution where you actually can’t really weigh with the outcomes. The good news is you have the sum total of the smartest people in the world trying to find the cure on the medical side, and on the government side and on the public policy maker side. So the central banks, they’ve learned the lessons of 2008/2009 financial crisis in the Great Recession. And they’re like, We’re going back to zero interest rates, we’re doing quantitative easing, we’re extending loans, and we’re trying to make everything to prevent a great depression. That said, because of the uncertainty, and you have to be ready for the case where you have zero revenues for the next 12 months and you need to have cash for the next 24 months. So I would be more aggressive and cutting today to be ready when the time comes. And what we’re seeing is a lot of companies, especially the ones doing well, they still have cash in the bank they’re still in a reasonable position of strength saying you know what, even though it’s been a year since we last raised capital we’ll open a new round, we’ll extend the last round, we’ll raise more money in the last rounds valuation just to have more cash on hand and some people were in a position to still do that. And I think it makes a lot of sense. I don’t think you can make predictions in this sense especially if you’re too optimistic, but that said, in general, I am optimistic and we can talk about why that is later. 


Giles I think lets assume that the finance markets are shut and you will learn. Not least because of people like you, Michiel, who will start picking up the phone. You guys will call any change in tone more than the companies will,  you’ll be more in tune. And, I mean, it’s a cliche, but entrepreneurs should always stay in touch with investors and build relationships for the long term with investors, shouldn’t stop talking to investors and it will become reasonably clear I think when when you guys want to start spending money again, it won’t be just because we asked you it’ll be because you’ve taken the view that the world’s changed.


Fabrice Yeah, startups are not sold. They’re bought. It’s when people and either m&a people, buyers, or public markets, or VCs or angels decide they want to invest that things change here. I agree.


Michiel And do you think the doors open first for less cash hungry companies? And are people hesitant to start pecking again at these high spenders or is it more about quality of company?


Fabrice By the way, I think that the zero rates in the future may inflate the biggest bubble we’ve ever seen. I mean, we’re seeing QE in the US bigger than during the financial crisis. You have negative rates in many places, zero rates. I mean, once it comes back, it may come back big.


Giles My guess Michiel, you’ll be a better judge of this, but my guess is, from a market timing point of view, you guys are probably keener to invest in startups today than businesses with heavy burn rates. And yeah, I think that business models that demanded enormous scales to breakeven, and there are lots of them around, well publicised that we know well, which seem to lose terrifying amounts of money. I think they’re uninvestable today. Hopefully for some of them, they’ve got enough money to see themselves through but those who don’t, who demand infinite growth to break even but with weak unit economics – are not going to survive.


Fabrice We might see consolidation. Maybe now they would let a merger of Uber and other competitors if I was Dara, I’d be like ‘you know what, let’s take it, not take advantage but this is one way that we could survive.’ And so the later stage companies, I think, you’re right, I’m an angel to VC, I bet right now I just want to invest in seed companies and pre seed companies. 


Michiel Yeah, and I think for a Series B companies, we tell them listen, you used to think of yourself as being extremely fundable and your top line growth was as high as possible. Now, the nice thing of the crisis everyone’s got to forgive a flat here, or very modest growth and that makes you a lot more attractive to be funded within 24 months before the markets open up again. And you just kind of try to keep running.  We didn’t have the time, but maybe let’s try to focus what are some positive things that come out of a crisis? You know, Fabrice already talked about if you survive here in a very strong position, what other great kind of elements happen? 


Fabrice Looking at 2009 to 2008, you had the creation of Uber, Airbnb, WhatsApp, Slack, I mean, so basically all the companies that defined this last past decade. The most interesting companies of our decade were created in the crisis. And I don’t think that’s a coincidence. When you’re creatived then, it’s best time to create a company, if you can get funded, you don’t face competition in your category. But it’s actually beyond that, you face less competition for talent, so it’s easier to attract attractive people. You face less competition in marketing, not just because you have direct competition, no one else is spending any money in marketing, customer acquisition costs go down dramatically in these time periods overall, because no one’s spending money on marketing. And so whether it’s sales or online marketing, you’re in a much stronger position. So unit economics are a lot stronger. I suspect that when we go back in the future, a decade from now, the most interesting companies of the 2020s are going to be built or getting started right now at the depth of this crisis. 


Ida I mean its almost like their are cracks in the wall right now, suddenly we are doing things online which we wouldn’t do before and we are showing each other we can radically change things, and of course that’s going to mean new startups can come up and new opportunities and in some sectors, this isn’t bad. Being in digital health, you know, people are consuming more health information on their devices and online. It’s not all bad. Wanted to mention that, and I wanted to mention another perspective that hasn’t been mentioned at all which is what happens internally, you have a team that you have to keep together. You need to keep people strong and motivated and I think somebody mentioned before where there is a moment you can create a lot of focus, a lot of cohesion and a lot of excitement about being a team that can do this together. 

And I think there is a whole skills set around how you manage yourself, how you manage your team. And especially right now where we not only have a market that’s crashing but we have a completely new world, we have to work online, we can’t go out. You know, it’s so strange. So it’s also a huge change process that we have to manage, and that’s a big part of serving as a company as well. It’s not just being able to pay salaries, its that people can’t be bothered to go to their screen in their bedroom at the moment. 


Michiel And so how do you manage the transparency and still show optimism? Im sure as an owner of a company, there are times you’re scared shitless. And its great to have this sense of comradery but you also want to feel optimistic so how are you balancing that? 


Ida I think for me its important to have 100% transparency with my management team, we are a team figuring out how we want to relate to what’s happening and then you want to make sure that you have a plan, that we all believe in. We need to think this is going to work. It might look different to what we thought two months ago but we can feel in our stomachs that this is going to work and then you go out with that and that’s what you get people excited around and believe in. But first I think its important to take the time to re-coup and make sure you come from a very strong place as you communicate to your team and that you truly have a plan that you can believe in. There might be a time lag between the consciousness process that has to happen in yourself and your management and then the wider team. 


Giles I think one thing I touched on earlier that you might want to think about as a CEO, in terms of what to do you spend your time doing. I would think about partnerships. Because one area you may not cut in your payroll is who ever is helping you, business development, partnership side. Because you’ll find a whole load of other people who have got no way of distributing their product. And some really long standing, really important partnerships are born out of necessity. I told you the one about MoneySupermarket, we wouldn’t be where we are without the partnership we had with them when we had none going into the crisis and there are lots of opportunities like this which are genuinely game changing. Where you have two parties which didn’t feel the need to talk to each other before or one party who desperately wanted to and the other was too arrogant to do so, suddenly things change. I’m sure Arthur and booking.com there must have been stories like that where you wanted to talk to people but just couldn’t and then suddenly they lost a channel or they were staring into the obis themselves and you became the solution to their problem. 


Arthur I think that is the second part, the 1st part making sure you are well prepared and you have enough runway but having done that then suddenly you have to shift minds into a new world which doesn’t just have scary stuff but also a lot of opportunity there. We finalised some of our biggest contracts with larger hotel chains who previously didn’t want to work with a small business from Amsterdam but we wanted to find distribution partners, like you said we got all the big allies who didn’t want to talk to us or wanted crazy down-payments and deposits that suddenly were willing to talk to us and they were searching for revenues. 

And I think that you shouldn’t waste a good crisis, its going to open up a lot of opportunities I think 2008/2009 is when we won world domination because our competitors pulled back on spending. Where we focused not only on product market but also  product channel fit and we were able to actually earn money when our competitors were losing money and they were pulling advertising budget which made our customer acquisition  cheaper so it was an amazing time for us of massive market share gains. So after that initial phase of making sure we had enough runway to survive, I think the next thing to do is look at the opportunity set before you because there may be a lot of opportunities which you’ve tried before but they didn’t work because your economics wouldn’t work, because people didn’t want to talk to you, because you couldn’t get partnerships, that suddenly are working so that’s partly where the optimistic entrepreneur is backed, its as if in the beginning you need a different kind of person willing to do the restructuring, the stuff that entrepreneurs are not really good for. But after that, once that has been done and you have the time to build again, once you have the cash to make it to the end. 


Ida Lets call it the creative entrepreneur. 


Michiel What I found myself in that period, where we acquired two thirds of our people so we had a much smaller production capacity so this stuff that you ended up building you really needed to count. So as management you would think a lot about what is the real innovation and where is the real business opportunities but also after you kind of launched the pictures, you keep aerating, tweaking and twisting it until it works. Rather than saying oh this didnt work, lets try something else, lets open up a new channel or spend a lot more money on it. So I thought that the alignment inside the company and the focus on outcomes was really helpful for us. 


Arthur I think it generally tend to build great businesses. From what I’ve seen in the time before a crisis, basically every problem is solved with more cash. So you don’t grow enough, you raise money, you spend more but you have incrementally less growth back and you get relatively in-efficient companies that also do a lot of stuff also within competing for talent, over paying, competing for customers, you overpay. And basically sometimes companies are giving away a $1 product for 90 cent, just sponsored by VC’s. Its actually a pretty common model, we all know, but that just doesn’t work anymore, when capital becomes scarce. So the companies that have an advantage now are the companies which are way more traditional, that basically focus on business with positive contribution margin, that are looking out for costs, that actually make conscious decisions like should I really do this, is this a must do that’s super important to my customers or is this just a pet project from somebody. I think that’s also a function of the crisis – that you’re making sure you’re working on the stuff that really matters, and also that on a macro level that it frees resources to those places.


Michiel Great, so given the timing, lets just do one more round on final comments, recommendations , observations from you guys. 


Ida In the comments there’s a guy saying that they just missed out on their funding for the C round, I would say fundraising is hard and now its even harder and keep trying! Because sometimes you just have to do what you have to do. And sometimes if it doesn’t work, by all means, keep trying. I think we can’t go into paralysis, I think that shows our entrepreneurship that you just keep pushing. Also when things are looking bleak. And in terms of when this whole thing is going to shift, and when are we getting out the crisis. I think at some point we’ll see that death rates aren’t what we thought they were and the whole thing of how we handle is going to get so painful that we’d rather, you know, I think the public opinion of when we have to shift course is going to happen not too far out, is my sort of sense. And then we will all have to go back to business because we can’t keep suffering and things not happening and so keep pushing is my advice. 


Fabrice And by the way, the seed areas is probably one of the areas where capital is still available because the macro environment that matters for you, is not the macro today, its the macro 10 years from now when you’re looking for an exit, or seven years from now, so most of the seed investors I know, to the extent the company has raised sufficient capital to last them over the next few years.. I think if you are series B or C and you need capital now, you are in a much weaker position but we are still investing. I actually invested in four companies yesterday. So we’re still optimistic about the future of technology. We wouldn’t have the productivity we still have today had it not been for technology, had this of hit 10 or 20 years ago and we’re all quarantined, people would have been going completely crazy and we wouldn’t have been able to do anything, we would have been very limited via a lack of technology so we are already in a much stronger position, I think we will come out of it the other end with changing mindsets and I actually think the future is very bright. 


Giles I would urge people, I can’t remember who said it, we’ve all read so many blogs and articles of wise people from the last crisis but something that stuck in my mind was that no one will ever regret the cuts they make today. Arthurs comments about kick ass teams you don’t need anymore are entirely right. focus on the long run and the ultimate prize can be enormous but just get on with it. 


Arthur I think that to some extent these are super hard times but apart from all the hardship that’s happening this is some of the stuff that entrepreneurs should be really good at, at creative problem-solving. This is a really hard nut to crack, you know, how to drive your company through the crisis and if you have built a kick-ass team make sure you keep trust and moral really high and this is basically your moment to make a difference. This is the ultimate problem-solving puzzle. Now you’re in it, its highly stressful but when you look back at it I’m highly sure that this is the moment you’ve made the difference. Really. Its probably good to sometimes step back and think okay, if you’re still safe, you’re still healthy, you aren’t in a hospital bed, this is just a massive challenge and this is basically the reason why you became an entrepreneur, to overcome a problem that isn’t easily solved by somebody else. Enjoy it.