An adapted story from the lessons of the dot com bubble. Please note, none of the caricatured CEOs below represent actual Dawn portfolio CEOs, who, particularly our late-stage CEOs, are excelling in their leadership during these difficult times.
A unicorn founder found himself at the bottom of his garden at dusk having a moment to himself when he heard a noise on the other side of the tall fence.
“Who’s there?” asked Unicorn CEO.
“It’s just me”, said Series B CEO. “I’ve just fed the kids dinner, my husband is sterilizing todays deliveries, and I’ve got some tough decisions to make before I put a bread on for tomorrow. You?”
“Same. Just got off a depressing management Zoom call and need to think about the company’s future before I vacuum the house and wipe down all the surfaces”.
Just then, there was a rustling from the huge property abutting both the founders’ properties and Ms Public Company CEO called over the fence, “Hey guys! You never realise how big your garden really is until you have to mow it yourself. How are your businesses handling the crisis?”
Series B CEO gave her account. “There’s definitely been a slowdown in sales but we are still closing deals. And the slips into next quarter should also close, along with other deals that are mid-pipe. However, I am concerned that the early pipe is looking soft so I took some actions. I am cutting total headcount by 30%, I’m also suspending bonuses and putting in a salary cut of 20% for senior execs. The cuts are deepest in Sales & Marketing, and less so in Product and Tech where I want to exit the crisis with a markedly different product than I entered the crisis. Finally, I’m investing in customer success where I want to keep and upsell my existing customers. All this will increase my current 12 months cash runway to 18 months and beyond. And you should know, Ms Public Company CEO, that with our redoubled focus on product and
strong ROI messages, we will keep pinching customers from your legacy products. Oh, and I’m cutting my own salary by 50% — I want to send the clear message that this is an existential crisis”.
Unicorn CEO then gave his account. “Originally, we were planning to IPO in the next 12 months but clearly we will have to hang on for a little longer. In the meantime, I want to preserve our capacity as much as possible for when the situation improves, so we will keep burning cash heavily to deliver growth. After all, I still have 12 months of cash in the bank and I am also immediately drawing down our venture debt lines which will give us an extra six months. So, in 18 months, the crisis should hopefully have abated and we’ll be able to raise capital, hopefully at a flat or better valuation, with a view to IPOing soon thereafter.
Ms Public Company CEO jumped in, “Unicorn CEO, I am puzzled. One of the things I admired most about your business was your bootstrap approach. You used to burn very little for every dollar of revenue.”
“Those days are sadly gone”, answered Unicorn CEO, “as we layered on costs to deliver growth.”
“Let me get this straight”, continued Ms Public Company CEO, “ Last year, as a low-burn business, if a VC had offered you funding and, in return, promised you dilution, a bigger cost base and lower growth prospects, would you have taken that trade?”
“Of course not.”
“But that’s where you have ended up. Surely the right move is to copy Series B CEO’s strategy, accept that the world has changed and you may no longer be a unicorn but can be so again with a prudent approach?”
Unicorn CEO sighed, “I know it’s a gamble but I last took money at a huge multiple based on future growth. If I don’t deliver that growth, I’ll never be able to raise money at anywhere near that valuation, so I’ve got to push for growth or I’m screwed. My go-to-market people take nine months to ramp and there’s no point letting them go to rehire them again. With our superior tech, I am planning on poaching enough customers from the likes of you, Ms Public
Company CEO, to show some good numbers.”
With that, the three founders agreed to meet up again in the same place in 12 months to compare notes, and went back to their curious domestic/professional lives at home.
Twelve months pass with Covid-19 going completely away after a mild recurrence and with the world operating within the better known dynamics of a recession. The three CEOs, now regularly working from home, met again at the back of their gardens to compare notes.
Series B CEO gave her account, “It’s been a rollercoaster year but one that, I feel, defined my company. We have had some lean quarters on the sales side but as we released our expanded product set and messaging, we delivered very relevant differentiation to legacy players and we are seeing a sharp uplift. We are now dipping into our venture debt line, picking up lots of sales talent from struggling companies to power our red-hot sales and marketing efforts. We think we can win big.”
Ms Public Company CEO gave her account, “We did what public companies always do in recessions: we fired some people, reduced IT spend and did whatever it took on price-at-renewals time to keep customers from churning to competitors, our balance sheet could easily support us. How about you Unicorn CEO, I see — by the way — that your house is on the market.”
A weary looking Unicorn CEO gave his account, “I had the most to lose so I didn’t feel we could change too much. But we’ve had a tough time. Initially, we gained confidence from converting customers we’d had in our late-stage pipe but Covid-19 killed our early pipe as enterprises froze any new relationships. It is only more recently that new logos are coming through in numbers, just a little too late, and with each one we’re fighting incumbents tooth and nail as they slash pricing to keep their customers. Just recently, we went through several rounds of layoffs but we’re still burning a lot of cash and are facing a cash-out day in six months’ time. With our high last-round valuation to defend and all our venture debt lines exhausted our future is not in our control”.
He turned to Ms Public Company CEO, “You wouldn’t be tempted to buy us?” he asked half-heartedly.
“Ask me again in six months,” she replied with a gleam in her eye.
