What's 🔥 in Enterprise IT/VC #177

Adjusting to the new normal, scenario planning and stress testing budgets

This week either went by super fast or slow for many readers as each day seemed to blur into the next. Once again, I hope you are all safe and healthy and finding ways to enjoy some of the family time. As for myself, I felt like I was in an endless loop of zooms working closely with founders as they did scenario planning and finding the balance to continue to meet new founders. The good news is that it is great to see new founders continuing to leave their companies in the midst of a crisis to pursue their passions, and I’m seeing a few get multiple term sheets. That being said, it’s also important to make sure that what you are building is solving a problem with a “true sense of urgency” as those are the only ones to be focused on in the foreseeable future.

On the scenario planning side, as much as I want to hope for the best where original budgets may be at 80% of plan, I don’t think that will be the case. Here is a sobering view from hedge fund Bridgewater Associates estimating a $4 Trillion hit to US Corporations.

Many economists are also saying a recession is inevitable (see NY Times article).

Greg Daco, chief U.S. economist at Oxford Economics, says the economy is assured of a recession — at least two consecutive quarters of economic decline — with output falling 0.4 percent in the first quarter and 12 percent in the second. That would be the biggest quarterly contraction on record, but Goldman Sachs upped the ante on Friday, saying it expected a 24 percent drop in the second quarter. 

“This is not just a blip,” Mr. Daco said of the outlook. “We’ve never experienced something like this.”

If Mr. Daco’s 10 percent figure is borne out, 16.5 million people would be out of work, compared with 5.8 million in February.

With that backdrop, I’d encourage founders to stress test some other scenarios like 0-50% of your original sales plans in Q2 and slower ramps in the later quarters. Here’s an unscientific survey I did on Twitter showing that most have already adjusted to this reality.

One other area that is super important to analyze is understanding your existing customer base, know when they are up for renewal, understand who may be at risk, and proactively reach out. Many SaaS businesses are not only built on renewal but more importantly expansion and if those go away a part of your business foundation does as well. Do the analysis, prepare for the worst and hope for the best.

For earlier stage companies, much of the budgeting that founders are used to doing start with revenue growth scenarios as the first optimization instead of cash first. What’s needed in this environment is a cash first forecast - what can I burn this year and how much runway will it give me next year and from there the revenue will fall out. Trust me this year is not the year to worry about the traditional SaaS metric for growth of Triple, Triple, Double, Double as I believe later stage investors will give many a pass and focus on sales and company efficiency, i.e. is the right framework in place from which the company can grow in more stable times. Once you make the plans and put them into action, think if what you are doing is enough. Because ultimately, you don’t want to be raising capital in this environment if you don’t have to.

Luckily Spike has been helping me approach this with a zen-like calm through all of this!


Scaling Startups

  1. As events are cancelled and many enterprise startups are thinking through lead generation for the future remember to be respectful - don’t flood inboxes now

    and CISO John has even more to add:

    and if you do any marketing, best is to offer your product for free to those in need - it will pay dividends down the line

  2. Alex Yampolskiy, co-founder and CEO of Security Scorecard (a portfolio co) is a chess expert and shares his thoughts on how to 🤔 8-10 steps ahead in a time of crisis

  3. Sequoia shares a framework on how to think about runway based on lockdown…

  4. 👏🏼 True leadership in a time of crisis - ray of light is signs of recovery in China…


Enterprise Tech

  1. 🌥️ - Congrats to portfolio co Spectro Cloud on their launch! Speaking with a reporter this week, while no sector is immune and every one will take a hit, I’m hoping devops and software infrastructure will be less impacted as there will likely be a new normal which involves companies investing more in their online presence. Suffice to say that devops will be even more crucial helping companies build, test, and release software faster and more reliably, keeping services running under new peak loads 24/7, and helping remote engineers be more productive.

  2. Along those lines Hashicorp closed on $175 million at a $5.1 billion valuation - dev ops automation is real! More from Techcrunch

  3. Github announces acquisition of npm - this is big and they’ll be investing a lot more in security of open source supply chain.

    npm is a critical part of the JavaScript world. The work of the npm team over the last 10 years, and the contributions of hundreds of thousands of open source developers and maintainers, have made npm home to over 1.3 million packages with 75 billion downloads a month. Together, they’ve helped JavaScript become the largest developer ecosystem in the world.

  4. Some levity 😃


Markets

  1. Zoom! Thank you!

  2. Crowdstrike in the security space defying gravity…up 17% after earnings release