What’s going on in the minds of CEOs of young companies?
The Federal Government: Historically, young companies, unless targeting the Federal government for new business, care little about Federal policies and rely on creating demand for their products and services, scaling their companies or maybe getting funded. This current crisis has shuttered or impacted hundreds of thousands of US businesses. The Federal Government has suddenly become a talking point for CEOs. With payroll protection programs, SBA loans that basically can turn into grants, and SBA affiliate definitions limiting (for now) venture backed companies from claiming SBA relief, the federal government has become a factor of doing business. Companies of every size are looking at Federal dollars to help them weather through the crisis. It’s not the reliable tenets of capitalism that are driving markets or the behavior of CEOs. Survival by any means and “plan for the worst and hope for the best” become the new mantras as every company is assessing what is available from government aid versus what can be achieved without accepting Federal (or State or Local) money.
Clarification of SBA programs: Many young company CEOs are wondering about the SBA programs and are spending a fair amount of time getting clarity and deciding what taking on government debt will do to their company. There are several programs including unemployment benefits for furloughs, deferment of payroll tax and forgivable loans to help pay the rent. Bankers, attorneys and SBA lenders are busy working with their clients around that clarity.
Affiliation Rule: Traditionally venture backed companies have not been able to access SBA loans because of the affiliation rule. Every employee of affiliated companies must be considered headcount. For instance, if a VC firm invested in 20 companies every employee in each of those companies was included in the overall headcount. So, if every company had at least 25 employees, you can see how quickly the number of employees can exceed the 500-employee limit. There is currently debate among the SBA and legislators to change the affiliation rule and allow venture backed companies to get access to SBA loans and relief processes. As of this writing, the current definition still stands.
Impact of the Coronavirus impact on individual companies: Depending on the industry, young companies are seeing varying effects from the crisis. Many have seen demand dive severely. Others are seeing a slowing of commitments in the pipeline or a slow down in pipeline creation. In a few cases demand is spiking quickly (think telemedicine) and CEOs are hustling for rapid scaling. Customers are looking for more favorable payment terms. Some supply chain issues, distribution or fulfillment problems have arisen. Some are benefiting from the work at home movement while others are struggling to manage via a virtual headquarters. Most smart companies are managing the company on a weekly basis shifting from a monthly focus due to the unpredictable nature of the market and overall business churn.
Managing a pivot: A few LP2X companies are managing a pivot and establishing value in shifting markets. The renewed focus is on product led growth and demand generation is web-based.
Leading remotely and on Video: Management teams are learning to lead through a screen with video. A small screen has become a portal into company operations and HR issues. CEOs are exploring ways to gauge productivity and employee happiness. For those that are hiring, on-boarding employees is performed entirely remotely. For those who are laying off or furloughing, it is a bittersweet challenge for CEOs to conduct downsizing remotely.
HR functions at the nexus of business: An entirely remote workforce is new to most companies. HR policies are being revamped to reflect the new work from home environment. Rightsizing the team is more of a challenge with unfamiliar circumstances and unpredictable demand. HR teams are on overdrive fielding questions about benefits and policies.
Resiliency: Resiliency is the ability to spring back and recover quickly. It requires grit, toughness and tenacity. Entrepreneurs are defined by resiliency. I have witnessed time after time that entrepreneurs are creative, innovative and never give up. That’s what I see today.
CEOs are mindful of all these factors. Yes, it’s a period of sudden and immediate change with an unclear path. CEOs are managing and supporting their teams, getting their teams input in new ways, making decisions sometimes on their “gut sense” for the benefit of the company. Isn’t that what leadership is all about?
Playing to win.
Bernie Dixon is the founder and chairman of Launchpad2X, a founder-to-CEO accelerator training organization for women entrepreneurs based in Atlanta, GA.