This is a transcript of the podcast Practical & Tactical Advice for Startups to Succeed in this Downturn, hosted by Steven Lord as he speaks with Dan Rosenbaum.
Dan Rosenbaum, one of Burkland’s seasoned fractional CFOs on the East Coast, provides “hands-on” practical and tactical advice for startups. Dan highlights what startups need to do today to succeed in this downturn. Dan provides real-world examples from his CFO and business experience. Dan also draws on what he sees today from his startup clients. He shares what is working well and positioning his startup clients for growth during this downturn.
Steve Lord:
Welcome to another episode of Burkland insights. This is our podcast series on lessons learned from the last downturn. I am Steve Lord from Burkland and I manage a team of CFOs here in New York City. I’m joined today by Dan Rosenbaum. He is one of the most experienced CFOs we have onboard in our group here in New York at Burkland. Dan is a highly experienced C suite executive. He has decades of experience in both fortune 500 companies, startups, and venture-backed startups. Dan has a very strong life sciences and manufacturing expertise. And he’s extremely adept at the kind of forward-thinking, high-level analysis, forecasting, and reporting that tend to be hallmarks of very strategic CFOs. So thanks for joining us.
Dan Rosenbaum:
Thank you. Good to be here.
Steve Lord:
So as you know, the idea behind this podcast series is to help CEOs and management teams at startups to understand the best practices, do’s and don’ts of navigating the kind of crisis that we’re in right now. And as we joke a lot of us this is our third or fourth, what was once a lifetime experience, or crisis. So what we’re drawing is people together who were in the trenches before, have gone through significant crisis type events at prior companies and trying to glean tips and tricks from them about how CEOs that maybe haven’t done this before, should approach it and what they’re doing and even potentially the life beyond the current crisis. You were on the firing lines during at least one of these prior once in a lifetime crises. Which one stands out to you and what was the scene at that company? What were you doing?
Dan Rosenbaum:
For me, it is going to be the financial crisis in 2008. And I remember very distinctly I was in a fortune 500 company at the time, and it just seemed like there was a complete pause for a few days of all activity. Markets kind of froze up and to see that level of concern and business cessation at a global company like that was shocking.
Steve Lord:
Right it sounds shocking.
Dan Rosenbaum:
Yeah. It just completely shocked us. And it was this level of uncertainty of, how long does this last and in what’s, of course, the impact on operations as a global company. So a huge amount of uncertainty. And then, things wound back, into action. After again, after this sort of pause, we were managing in a crisis.
Steve Lord:
Do you think part of what that was was just simply put, people trying to get their bearings and assess? There’s that in any crisis situation, there’s a moment where something is so far afield of what we are used to seeing and doing. And it takes us a minute to process just how different it is and what to do with that new sort of information. Do you think even at Fortune 500 company institutionally it has to do the same thing?
Dan Rosenbaum:
Yeah, I think so because your customers hit the pause button, even if it’s momentarily and it ripples through everything. Whether it’s sales that are in the pipeline, whether it’s receivables and the ability to collect cash, whether it’s more of the financial markets freezing up and banks freezing up. Certainly that case for a global company when the banking system starts to freeze up, right, you hit the pause button, it ripples through everything. And so I think part of it was just when does it, how long is that going to last? When are you going to be able to conduct business? For that period of time, you just don’t know. And it was certainly in my case, not like anything I’d seen in the past. So you just have this level of uncertainty where there is no playbook.
What stands out about the current crisis compared to that one or your other prior experiences?
Steve Lord:
Actually, that’s a good segue into one of our questions is, What stands out about the current crisis compared to that one or your other prior experiences? Because there are some pretty significant similarities, and then there are some differences as well.
Dan Rosenbaum:
Well, certainly the level of uncertainty and in the cautiousness, but I actually think in this case, there are more differences than similarities. And I think in this case, it’s a lot more complicated because of the combination of not just economic-financial system questions, but also just general health care health concerns on a global pandemic and even socio-economic factors. And then you layer on top of that.
Not just in the US, but even in other countries, it’s become highly politicized on top of that. And so the complexity of what really, in this case, needs to be coordinated or responses. It’s more I think the level of coordination needed is much higher than perhaps what we saw in the financial crisis. And even earlier, and the idea that the success of any kind of set of actions that one government takes is going to be highly dependent on what other governments do, and we see that even in our own, even within the different states in the United States.
Steve Lord:
Yeah, right. So the complexity of these coordinated responses that cut across so many different factors, so many different departments, whether it’s CDC, the health, plus the economic factors, I think that seems to me to be quite unique in this case, and a different level of uncertainty than I expected. I agree. I also think the speed is different. It felt like the global financial crisis happened quickly, but it didn’t really in the grand scheme of things this, this one is more event-driven, kind of more like 9/11 was where like one day to the next we woke up and part of the world had changed. And I think the comprehensiveness of this one, was literally from a few weeks to another few weeks.
You have this thing across the entire country, even in the global financial crisis, a person in Ohio still got up and didn’t think they were going to catch some disease in a mall, right. So the fact that it was across every industry, every state at the same time that felt to me very, very different. When you look at how CEOs try to index that kind of experience, it’s easy to say the simple stuff like conserve cash, but how do you draw from like going through the crisis in 2008, knowing there are issues on issues and then issues that relate to the new issues. And there’s a whole bunch of consequential management stuff and things like that planning, scenario analysis, what do you? Where do you start and how does the past kind of help you adjust to a new normal? Help us understand a little bit about how you could use prior experiences. If you were giving advice to a new CFO or CEO hasn’t been through one of these before. What would you say?
If you were giving advice to a new CFO or CEO hasn’t been through one of these before. What would you say?
Dan Rosenbaum:
Well, I think as you pointed out, the whole focus on cash I mean, those are kind of table stakes. But I think that has to go equally with communicating with the organization, your organization and with customers, that there’s such a heightened level of uncertainty and anxiety, that if you’re going to manage through this, and even in some cases, I think questions might come even. There might be opportunities that result in this. Tou need to address the anxiety that’s going to be in your organization, and you need to make sure that you keep, key talent, and a team that can work through this. So I think it’s better to over-communicate, particularly with the emphasis to be transparent.
There’s a couple of good examples that I’ve just heard recently about. Founder CEOs making it a point to, share some of their uncertainty and their unknowns but also share. And what this means to people in the company and it doesn’t change any of the uncertainties, but it certainly helps to make the team feel like okay, the leaders are being transparent with us, they’re going to be upfront with us. And if it comes down to that there needs to be some shared sacrifice with let’s say, a temporary work reduction or pay cuts, then leading by example, number of the team you know, in the group intact, and I think those companies come out of the back end of this in a stronger position.
Steve Lord:
Well, I think their people trust them better. You know, like, people are smart. They, I think the management teams that say, Oh, don’t worry, everything’s gonna be fine. Nothing to see here. We’re gonna be great. We’re going to get past this. They see through that like they read the news. They know that there’s probably a lot you don’t know. So I totally agree that the more transparent you are, and it’s okay as a CEO to admit, hey, I don’t really know how all of this is gonna go. But I have ideas on how we’re going to handle If this happens, or this happens, or is this often so at least you communicate to them that you’re thinking about different alternatives.
Dan Rosenbaum:
And here’s, here’s what we know, here’s what you don’t know. And here’s where we’re going to communicate to you next and keep you in a loop.
What do you do about product launches, hiring plans, how do you handle investors in a thing like this?
Steve Lord:
What do you do about product launches, hiring plans, how do you handle investors in a thing like this? Like, looking back, how did that happen when you were in the crisis before and what would you tell folks now?
Dan Rosenbaum:
Well, I think a crisis like this forces you to focus on your fundamentals and your strategy. Soalways there’s a list of what you need to do, whatever you want to do and what you’d like to do, and you’ve got to narrow that down pretty quickly, whether it’s projects, product launches, even, organizationally. So if you do need to pare back, if you do need to preserve your own runway, you’re focusing on the things that you know are core and either putting on hold or shedding those things that are not. And that’s tough.
It’s really tough to stop projects or delay product launches. But that is where the financial modeling that fractional CFOs do can help. I think that’s the importance of the scenario modeling and understanding what things may put you in jeopardy if you have a major capacity expansion, and it’s going to take X amount of cash, or funds. But by doing that, you may put yourself in a situation where you remove all financial flexibility and then the ability to weather twelve months more of this storm. And then that’s probably not something that you ought to be doing, or at least that’s a board-level discussion. And you better understand the risks of that. So I think the bottom line is you need to really understand the risk balances of some of these decisions or the growth plans that you had prior to this crisis, and then see if they still make sense, or did they put you in an untenable situation?
Steve Lord:
Yeah, I think you’re hitting on something there. Because like, you might have run into the crisis with a growth mentality or from your investors or, or whatever you’re trying to do, which is what attracted maybe venture money to you in the first place, but then you shift to here.
And, like you were saying, you might have a growth plan, but that growth plan might drain your cash down to under 12 months or something and you don’t really know or you’re not comfortable knowing exactly when you may be able to get another fundraising round done. So your margin for error drops, right? Like you don’t want to put the company into a ditch that it can’t get out of.
So boosting the margin of error that you might have in case maybe that product doesn’t hit the way you’d like, or you can’t launch it because of COVID or whatever. I see that happening. And I know my own experience, that was the thing that I don’t think we did well, in one of these where we kind of believed our own marketing to the point we were like, well, of course, it’s gonna work and then it didn’t work quite as well as we wanted if we didn’t have the buffer or the maneuvering room anymore to manage it the way we wanted. So, peeling back on that just for a second, you mentioned communication, does that exist upward as well? You mentioned get board-level decisions. Do you over-communicate to the Board that way as well?
Do you over-communicate to the Board?
Dan Rosenbaum:
I think the board is going to need to feel very informed especially with startups. And in some cases I can speak to in certain countries, the board actually has quite a bit of fiduciary responsibility and liability, in that case, then over-communicating or very precise communication where they feel informed, and they’re making the best decisions on behalf of those shareholders. Yeah, they’ve got a sort of double duty. So I think that’s absolutely critical.
I think some CEO is pulling their horns a little bit in that regard because they might have brought those investors in based on a whole bunch of really rosy scenarios that may now be out the window. We’ve seen a little bit of it in this crisis and we’ve worked with our clients to avoid is kind of lowering that communication and not wanting to admit that while maybe our plan is out the window, but I think like you’re saying is, you have to do the opposite.
You need to be very open with them as well as make sure they understand where the business is. And they know you didn’t cause COVID so likely they’re not going to lay this at your feet. But as a CEO, it’s very likely that you may need some more operating bandwidth or forgiveness, let’s say for some of the commitments pre-COVID. Yeah, I think they’re going to be, let’s say detrimental, put the company in a risk position that it can’t work. And, yeah, you’re going to need some folks on the board to sort of support that and run cover for you. So whether it’s the whole board, whether it’s a couple of people in the board that you might have the ear of it’s going to be important that they that at least a couple of champions on that board understand maybe a more nuanced position around why delay this or why maybe change this plan from a pre-crisis view
Steve Lord:
How early do you do that? I mean, its a little late now, but we may still be on the earlier side of a longer-term thing here. Are you on the phone with those guys day one? Or do you let it roll out a little bit? One of the things I’ve seen, not to bias the question, but one of the things I have seen and experienced myself is that sometimes people wait a little too long to do that. And then the board feels like you said they feel kind of behind the ball, and that you didn’t really bring them in. So your experience as well then, like sooner is better, both downward into your company and upward to your board.
Dan Rosenbaum:
Yeah, I mean, as far as the board goes, my operating mentality is, it’s not good to surprise board members. That should be avoided right now. Hopefully, it’s not an epiphany to anyone.
Steve Lord:
And, so the bias then is, sooner is better. Even if it’s simply to say, look, this is the way we’re thinking about it. These are implications. Here’s the work-in-process right now. I think even just letting the board know that you’re focused on the right questions, right? It buys you credibility, even if.
And I think it’s almost not to be expected that you’re going to have all the answers because the bottom line is right now, nobody knows what the answers are to a lot of these things because nobody can accurately predict. Is this a three month or three years scenario that we’re looking at?
And so, I think what’s critical early on, is to let the board know, these are the couple questions that we’re focused on specific to our business or industry. And, and then here’s what we’re going to have guidance around and how we handle this stuff. And like we were talking about before, I think it’s important that the CEO, be honest in those conversations. Don’t over-promise and don’t paint some sort of rosy picture. All we’re gonna be fine. Right? And because that will turn around and bite you if things don’t work out the way you want.
Dan Rosenbaum:
Right and along those lines, don’t feel obligated to provide an answer for every possible question. You’re going to end up overreaching and it’s gonna bite you.
How would you contrast a crisis level response in a fortune 500 company with a typical Burkland client, which is a venture-backed startup?
Steve Lord:
How would you contrast a crisis level response in a fortune 500 company with a typical Burkland client, which is a venture backed startup with, anywhere from five to 50 employees? Like what stands out there?
Dan Rosenbaum:
Well in a fortune 500 company obviously you have a huge amount of resources to potentially deploy. Assuming you’re in reasonable financial shape, you’ve got levers that you can pull, probably to access financial resources that you’re simply not going to have in a smaller situation. So I think in that respect, it’s a lot more difficult for smaller companies. On the other hand, you can be far more nimble. Right now you’ve got much more direct lines of communication. I think the communication that you have with your employees becomes even more critical because chances are that folks in your group are going to have to wear a lot of different hats, right? You’re going to have to step up in ways that maybe they’re not used to and you’re very likely going to need people to do that.
Shoring up your capital base is probably the biggest deficit. When smaller companies are trying to make a go of it versus a big, huge firm. The rest of it, though, is sometimes a real advantage in this kind of environment for a startup, like pivoting to opportunities or moving the company more rapidly toward one of the scenarios.
So moving much more quickly and that sort of scenario pivoting is much easier in a smaller company. After explaining to the chairman or a couple of the board members, look, here’s what we got to do, and we got to do it quickly. That could happen in a matter of days. And then going ahead and executing on parts of that plan, some of it done, while you’re actually doing the planning. But it was much quicker to execute in a case like that than if you’re with a large company with lots of layers of bureaucracy and then famous different departments whose task it is to, to be involved or overseeing some of these things.
Steve Lord:
Yes, another advantage of a startup is you can get a decision in a day theoretically versus having to wait two weeks for somebody to probably do that it and one of the counters that we heard on that and I’ve experienced as well, yes, but all of those people and all of those resources in a larger firm are bumpers on the baby carriage so to speak, because they’re very smart, and they’re all very experienced, and they have the ability to protect you from yourself. But that by default means that they move more slowly. So many moments in prior crises that you can recall were the avenue that the firm needed to pursue actually ended up opening doors that you wouldn’t have otherwise seen or opportunities that wouldn’t have otherwise been seen?
Dan Rosenbaum:
You get one shot to basically say, hey, here’s the direction.
What I am thinking of is a situation that required hitting the reset button. So what opened up is to both customers who knew there were issues and even internally where the group had pretty much lost its legitimacy. So a new leader came in, and I was sort of the key person in that turnaround team, that we basically got a chance to hit the reset button and take the company in a healthier direction in a way that would not have probably been possible before.
Now, it caused a lot of pain. But, in that kind of case where it’s sort of a turnaround situation, I think you’d get kind of one chance. Yeah, to basically hit that reset, and particularly with employees that you want to retain but also largely with the customer base, the existing customer base. And they get a sense of perhaps in a healthy situation, what’s going on that trust is not there.
So you get one shot to basically say, hey, here’s the direction. Now, here’s the new team. And in some cases, and we did this, you do a bit of a roadshow, almost like you’re going to potential investors. On the roadshow, in this case, you’re doing with some of the major accounts of major customers, and you explain some of what went on but more focused on here’s why this is good for you and this is the new direction. And here’s why this is what we’re doing. Yeah, that’s a neat one. We want to retain your loyalty and you as a customer, and then if you execute on that you can build some pretty good loyalties. But again, I think the key there is you only get one shot to do that.
Do you think a roadshow like that is valuable now in this kind of environment?
Steve Lord:
Do you think a roadshow like that is valuable now in this kind of environment?
Steve Rosenbaum:
I think, in a turnaround or more localized crisis, where your audience is experiencing something more normal, right? It makes a lot of sense. But in this situation everyone is in a crisis, they’re probably in crisis too, right? And so my concern is, in this environment, aside from the logistical issues of it, I do think it’s much more effective to be in person but even that aside, everyone along that chain and the industry that you’re in is most likely experiencing some sort of disruption. So to reach out and say here’s what we’re gonna do for you, and how we’re going to survive makes sense.
If we had to do that over again, we might have gone a different direction, and does that, change how you advise your clients now?
Steve Lord:
So let’s go to the other side. Now, like looking back on your career and other crises that you’ve been in, what if any like mistakes come to mind or misjudgment that you might have seen a CEO make or a board that you maybe didn’t know at the time but you would say, well, if we had to do that over again, we might have gone a different direction and does that, change how you advise your clients now?
Dan Rosenbaum:
One thing that I’ve observed, and I’ve experienced myself and I look back and say, what I wish I’ve done differently it often has to do with wishing I made that decision sooner than I did. It’s easy to sort of fool yourself and say, or to use as an excuse, I just need some more information. And then I can make this decision.
And what you’re really doing is, you’re sort of shying away from the uncertainty or the risk of making the wrong decision. But it doesn’t change the fact that, not making that decision might be equally or even more risky. And I think this idea of sort of waiting for more information or thinking the uncertainty is going to go down is a big waste. And typically I’ve experienced a couple of times, where a year after you’ve gotten through something, you look back and say, Boy, if I had made that decision six months earlier, couldn’t we be in? You know, be in?
Steve Lord:
Yeah, we’d be better positioned.
Dan Rosenbaum:
Yeah. And I think in order to do that, you have to really separate. What is an existential risk? Boy, if I get this decision wrong, it’s going to wipe out the company or rank forces into bankruptcy, versus a recoverable one, where I’m going to look foolish. And it’s going to be obvious, I made the wrong call, but I’m not putting the company at risk, right. And on those my bias would be, the bias for action, take the action because even, you know, you’re going to be right, whatever, nine times out of 10, seven times out of 10, whatever it is, and collectively, those things will put you in a better place then, than trying to be right all the time.
Steve Lord:
Yeah. And like you said, waiting for the perfect information in a crisis never happens. It’s a perfect recipe for paralysis. And that’s when you really get in trouble because you don’t go after and you don’t go, right. You just sit there. And in a crisis situation, one of the best pieces of advice I ever got was to move, like, you said, make a decision, understand what you know, understand what you don’t know. And like you said, how can you avoid the low probability high impact risk? And how can you maneuver toward the reverse of that where you actually have a low probability of a low negative impact and a high probability of a high reward? Yeah, I think there’s, there’s a lot of younger CEOs that this is their first time around, and I especially with the nature of this particular crisis, and how widespread it is. That’s a big thing. They don’t know what to do; they’re kind of standing there like, I don’t know.
Dan Rosenbaum:
And if you’re a younger company, it’s the first time dealing with a crisis like this, you’ve got a great growth plan, you got a bunch of projects, the idea of having to either mothball or just complete some of these projects, you feel like, oh, I’m cutting it all off.
Steve Lord:
Right. You live your whole life for the last two, three years, right?
Dan Rosenbaum:
Yeah, or some of these might be pet projects. And the reality may be that you’ve got to prioritize, you’ve got to cut some of them and which ones, it’s not fun, and I think, those are not easy decisions. So, those are ones that probably need to be done rather quickly. And then if you delay those, then you could end up really burning up resources. For other possible scenarios that are a little less, let’s say less optimistic.
Cash is still king at the end of this, you need as much runway as you can so you can hold your breath. Anything I’d say that you make a really good point is those decisions where a CEO doesn’t really feel comfortable making the call, get your board’s opinion, bouncing it off of them, getting their buy-in on it, so that it’s not just one lonely CEO, but also the board is backing your decision.
What are the opportunities right now?
Steve Lord:
Right like, we use to make dog harnesses now we’re gonna make enterprise SAS equipment, you know. Some sort of like a major pivot that you need the board all over that stuff, right.
So, like the pivot idea that brings me to another question. The other hallmark of a good management team and a good CEO is they have their radar up for other new opportunities, investments. But what’s your sense there? I mean, some of the best companies and the biggest companies that we deal with right now came out of the last crisis and they were, they were nimble. They didn’t hesitate. They seized opportunities. What do you think about that?
Dan Rosenbaum:
Well, obviously, if your ship is sinking fast, it’s probably not the best to be saying how do we squeeze 10% more horsepower onto the engine, right? But that aside, look; The economy contracts by whatever it is 5%. Well, 95% is still functioning. Right. And, and so there’s still absolutely big opportunities out there.
And my answer is, yes. CEOs, leadership teams, they should be looking for opportunities.
And my answer is, yes. CEOs, leadership teams, they should be looking for opportunities. And particularly because I think that this also is somewhat unique with this pandemic, it’s almost certainly going to change in a permanent way. Everything from consumer behaviors, long term government policies, impact commercial real estate, supply chains, employee safety, health care policies on and on, and, and those changes are going to have to impact the way that we work and they’re going to create opportunities, in probable ways we don’t even quite imagine yet. And so there’s no question that In those changes, either the old industry or legacy industries are going to find new ways to do business. They are better yet if they can anticipate some of those, and there’s probably going to be new businesses that crop up in response to some of these changes.
I read a thing the other day that Zoom believes that three years’ worth of adoption was squeezed into one month for their video platform. Because we all know now where the mute button is on zoom. Most, not most, but a large number of people are now very comfortable and very familiar with video conferencing, which they would not have been without this crisis. Right. So there, yeah, where do you go with that as a company that maybe is in that business, we have up and down the chain that are now kind of figured out how to like reduce their expenses. And if they had to do a reduction in force or whatever, they did that and now they’re kind of like alright, how can I use this? It sounds weird to say that, but what opportunities might be there now?
Steve Lord:
You know the old saying, fortune favors the bold. And if you smell that sort of opportunity CEOs, make the effort you need to make to at least run it down now quickly before somebody else comes up with that same idea or figures out the same market opportunity that you might be sensing, right again, get your board’s buy-in and all that. But I think there’s never been a crisis I’ve gone through now, which goes back further than probably both of us would like to admit where there were not real winners that emerged out of whatever we were dealing with. Right.
I can remember after 9/11, remember, even a couple of years after 9/11 no one was ever going to live in lower Manhattan. Right. And that, that ended up not being the case in the people that were able to move quickly. Were able to fill demand there that they were very happy to have five years later. So I think there’s lots and lots to say about that kind of thing, but, just one last thing. I think there’s also every company’s moment when they feel comfortable enough to focus on that kind of stuff is going to be different. So there’s really no magic ball that says, okay, six months after the start of the crisis, you should be looking at opportunities. Right? It all depends. But having that radar on, I think is really important.
Dan Rosenbaum:
My guess is that you know virtually every company with a supply chain cutting across borders, international borders are going to be re-evaluating their supply-chain risk, redundancies, that in good times redundancies may look like excess and waste but in times like this it looks very smart. But how do you strike that balance? But I think that’s going to be happening across the board, it’s gonna be fundamental shifts in whether its supply chain, sourcing, manufacturing strategies.
Steve Lord:
Headcount, right? Office space, everything, yep
Dan Rosenbaum:
How your people communicate, yeah I think there’s gonna be major shifts and even you might say, how do you impact some of those things in the absence of clear government policies, or positions or coordination across governments where just because two countries may have a political loggerhead in some issue you know you still got to get goods in across borders and through customs. So how do you still make those things happen and function?
Steve Lord:
Especially when we don’t really, I mean, certain parts of the country have kind of come to the light at the end of the tunnel, others are heading into a tunnel that they don’t understand yet, and that’s just in the states. Think nothing of country to country to country. So I think that this one, in particular, is harder than other crises that have been a little more bounded in event-driven stuff right like this happened, now we gotta dig our way out of it but it’s not this rolling crisis that we may or may not be facing.
Well listen this has been awesome love these kinds of conversations, you and I talk about this kind of stuff offline on the podcast anyway but this has been great. I’m sensitive to our time so I think we’ll probably wrap it there. Thanks again for joining us this has been another episode of Burkland Insights which is our podcast series on lessons learned from prior downturns and we’ve been speaking with Dan Rosenbaum who’s one of the New York area CFOs at Burkland. Thanks again for joining us, Dan
Dan Rosenbaum:
Thank you.