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The Smarter Startup

COVID-19 Sea Change: How a Shift in Startup Growth Psychology Can Help Save You

How a shift in startup growth psychology can save you during the COVID-19 crisis. Startups struggle to move ahead in a flat environment.

From relatively calm seas only a few months ago, most startups have seen dramatic changes in their operating environments in a very short period of time. Most are now hunkered down and trying their best to manage through a black swan crisis of historic proportions. The severe economic recession unleashed by COVID-19 (and the measures in place to contain it) have pushed the startup CEOs we work with to become laser-focused on contingency planning and survival mechanisms – how to extend cash runways, cutting marketing and other non-essential OpEx, furloughing employees, freezing hiring, etc. But I’d argue one thing underpins any startup’s ability to successfully navigate the current environment: A shift in psychology.

There is an old saying on Wall Street that says during bear markets, “he who loses least wins the most”.

Startup Growth at All Costs is An Old Approach Now

It’s applicable now to anyone trying to run a business, but specifically to venture-backed startups whose ethos has primarily been grow-grow-grow for 12 years straight. Companies that exit this downturn flat will be heralded as success stories; the old approach of growth-at-all-costs, summed up best in the “triple/triple/double-double-double” SaaS model for annual revenue growth, is out the window for the foreseeable future. Shifting your expectations (and those of your team) such that flat is celebrated as an extraordinary accomplishment will reframe your company’s priorities and organizational culture enough to make those hard decisions about cost-cutting and contingency planning easier and far more sustainable.

It’s Now Survival of the Company

This shift in psychology can be very liberating at a crucial time. Since growth-at-all-costs was the ethos of most startups up to early March, the mindset is understandably embedded across the enterprise. But the ground has fundamentally shifted; inertia is your enemy right now, and it begins with clinging onto old assumptions or thinking you can just wait this whole thing out. If you think you’ve cut expenses enough, you probably haven’t. If you’ve held off on a hiring freeze because engineering says they really need that extra talent, that’s old expectations intruding into a new reality. The truth is, they probably don’t, and in any event, you can revisit down the road when the smoke clears. Nice-to-have vs. must-have becomes a different exercise now that survival of the company is at stake, and the sooner the CEO gets their head around this shift, the better.

Granted, if you’re lucky enough to be running a company whose demand has skyrocketed because of the crisis, or one with 24 months of cash on hand and a strong outlook, you can afford to be opportunistic during this period and watch for strategic hires, acquisitions and other investments. But for most businesses, acknowledging that their legacy expectations about sales, growth, and market share are no longer relevant is the first step in adapting to the situation at hand.

Flat is an Achievement

CEO coach Matt Mochary’s recent LinkedIn post partially speaks to this shift in psychology. Matt adds a key aspect: Age. Older CEOs, i.e. those over 40 and who were in business during the dot-com crash in 2001 and the 2009 financial crisis, know what it’s like to see expectations and assumptions go out the window in a heartbeat. They can easily imagine the world (and their business) being in a dramatically different place when the crisis recedes, and they’re under no illusions about what it might take to get there. Younger CEOs, i.e., those only active since the 2009 financial crisis, haven’t experienced anything like what we’re dealing with now, and thus have a tough time imagining just how long and hard the road ahead might be.

Matt ends his post by suggesting younger CEOs tap into the experiences and imaginations of older executives who have seen at least a version of the movie we’re currently in. We agree and think the ability to imagine different outcomes enables strong CEOs to plan for different outcomes – good, bad, and in the middle. But a prerequisite of imagination is a willingness to let go of prior assumptions and expectations, or at least look at them from fresh perspectives. Shifting your company’s ethos away from growth-at-all-costs and accepting that, at least for now, flat is an achievement that will keep you from getting over your skis and allow you to adapt the business as much as necessary to get to the other side of the crisis. Expectations of success have changed; so must your psychology, and successful startups will embrace this transformation.