In this episode of Startups For The Rest Of Us, Rob along with guest Einar Vollset, talk about the current crisis and as a founder what your mindset should be and what to do to be prepared.
Rob: Welcome to this week’s episode of Startups for the Rest of Us. I’m your host, Rob Walling. Each week on the show, we cover topics related to building and growing startups that are ambitious but use a sane approach. This week’s a little different. This is an episode I’ve been wanting to record for a few weeks, but I had recorded out several interviews that I wanted to get live. I wanted to talk about this current crisis that we’re facing. It’s multifaceted, there’s the COVID-19 health crisis. Essentially, we’re seeing a bear market in the stock market. We’re very likely, almost with certainty, are facing upcoming worldwide recession.
I wanted to record this episode, I was thinking about how to do it, and then I got an email from James Kennedy, who’s been a multi-time MicroConf speaker. You may know him from ProcurementExpress. He emailed and said, “My guess is that the community urgently needs a podcast on COVID-19. We haven’t seen much change yet, but I’m worried that this might be the calm before the storm.” I don’t care if you’re SaaS, marketplace, one-time sales, self-funded, indie-funded, bootstrap, or venture funded, as a founder, what should your mindset be? What should we all be doing to prepare?
I can tend to be a little optimistic, I will say. My wife doesn’t think so, but I can be a little optimistic. Today’s guest balances me out. I am not nearly as bearish as Einar Vollset, and I think that that’s a good thing. Einar, welcome back to the show. This is your third appearance on Startups for the Rest of Us.
Einar: Thanks for having me, Rob.
Rob: Absolutely. Honestly, Einar is up to speed on a lot of numbers. He has a PhD in Computer Science, does a ton of data crunching, and pays attention to all the news that’s coming through. I actually go to him when I’m trying to sanity check my assumptions about what’s going on today and where we’re headed. Weeks ago, he was saying, “Hey, this COVID thing is going to be a real thing.” A lot of people were saying that but there was a lot of chaos like, “Yeah, it’s going to be bad,” “It’s not going to be bad,” “It’s exponential,” and this and that. There was a lot of noise. There were a few folks that I felt like got this right, and Einar was on top of that stuff.
There’s a lot to cover today. It’s very likely going to be a longer than normal episode, but this is a case where I don’t feel like we should skip over things to try to make it a shorter episode, because it’s so important. I think everyone needs to be thinking about this in some form or fashion.
To start off, we’re going to talk a little bit about recessions, bear markets, where we’re at with that; and then I had six points that I wanted to walk through. Six things that I think will be helpful for thoughtful founders—both for themselves but also for their companies—to think about. Some actions that I think they need to be willing to take.
The good news is Einar and I may disagree on things because this is not clear cut. No one knows what next week, next month, and next year looks like, but we all have kind of our own reads on the situation. I think it’s going to be interesting, and hopefully, enlightening for all of us to wrap these things around.
To start, Einar, personally, I don’t see any reality where we don’t slip into a recession at least in the US and probably most of the developed world. Right now, the world economy is effectively contracting dramatically. Are you on the same boat with that?
Einar: Yeah, 100%. I think that’s pretty much the consensus view now, the question is just what kind of recession are we going to have? Is it going to be a long one or a short one? How bad is it going to be? We’re recording this on Wednesday or Thursday, the unemployment numbers are due to come out on Friday. For the US, they are usually around 200,000. I’ve seen estimates anywhere from 1.5 million to 6 million people unemployed. Almost, no matter what happens, it’s going to cause a recession. The question is just how long is it going to be and how bad is it going to be?
Genuinely, I think that has most to do with how bad the virus becomes. Are we able to respond to it properly? Are we able to get antivirals in place? Are we able to do surge capacity in hospitals? How soon can we get back to “normal”? I think that’s the determining factor. From where I’m sitting, it seems to me like, at least in the US, both the fiscal and the stimulus response… This would be both what the Fed has done in terms of unlimited quantitative easing, printing money, basically to keep the markets going, and these stimulus bills have been coming through Congress. I think the third one is about to be signed today. From my perspective, that’s it. They’re pretty much out of bullets at that point. And then, it just becomes a matter of can we get this Corona thing under control? Can we mitigate some of the worst outcomes? I think that’ll determine how bad it’ll be.
Rob: Yeah, and I think folks who remember the 2008-2009 Great Recession, that felt terrible at the time. It was different because it wasn’t directly threatening lives the way this is; but I, at one point, thought that the modern world was going to completely collapse. I think other folks did too. If you go back and watch The Big Short, which I watched two weeks ago with my 13-year-old son—him for the first time, me for like the 15th time, I love that movie—it does a decent job of portraying how panicked people were about it. This feels terrible now, but it felt really bad then too. I’m not even trying to compare the two of them, but it does bring me… I’ve lived personally through five recessions that I can remember since the ’80s.
Einar: It’s because you’re old, Rob.
Rob: It is because I’m old. These recessions are things that we’re going to get through. It feels terrible right now, but things will get better. We will make it through this even though this is terrible. That’s the thing, COVID is very serious and very tragic. It’s going to continue to be a tragic story, anytime people’s health and lives are on the line. At the same time, I feel like we have a responsibility as entrepreneurs, as founders, as human beings to think about how to keep our companies afloat, right? To think about how to take care of ourselves, our families, our employees, our communities, both health-wise and financially. That’s why we’re recording this today.
Let’s take this as a serious thing, but let’s not panic. Let’s think ahead. Let’s have some cash reserves, which we’ll talk about a little later. Frankly, start thinking about if you need to make cuts, make cuts early.
Just two things I wanted to say before getting into some nitty gritty is you hear a lot of talk about recessions and bear markets. Those two things are not necessarily the same, though they often correlate. Since the Great Depression in 1929, there have been a bunch of recessions, and almost all of them have been between 6 months and 18 months long. The Great Recession felt like an eternity because the recovery took long, but a recession is defined as GDP shrinking by certain… How is it defined?
Einar: Bear market and stock market going down 20% since peak. Recession is a contraction of the GDP for two quarters in a row.
Rob: Consecutive quarters, right? That’s what we’re going to see. That won’t officially be declared for five months or six months, but we already know that that’s coming. The recession is economic. A bear market is what you said, it’s a stock market, right? It’s when it drops 20% from a peak. There have been 16 bear markets since 1926. They lost on an average of 22 months, but that is 22 months total, it starts to recover somewhere in there. It’s like that 10- to 12-month timeframe, where it really does become a true bear market, and 22 months to make it back up and really start working.
The interesting thing is in the year after the trough of every bear market since 1929, the S&P has gained an average of 47%, according to Fidelity Investments. All that to say is don’t confuse these two things, recessions and bear markets. I do think that it’s important to know because you hear it in the news all day about “Oh my gosh, we’re entering this and that.” Having just a sane look at what this stuff is important. Given that the massive stimulus packages that are rolling out, like you’re talking about, this feels reminiscent of 2008-2009. Those packages while it still got bad, they did soften the blow quite a bit.
Einar: Probably, definite there. Whatever you think about crony capitalism, the fact of the matter is they had to do what they had to do. That’s pretty much what’s going to save the world economy. Just to give context for people here, as we’re talking today, I’m expecting the third Relief Bill to go through Congress today. It’s going to be $2 trillion, which is a fair amount of cash. It’s actually double the amount that they spent on the 2008 bailout package. That tells you how serious they’re taking it.
Rob: Yeah, I didn’t realize that. Again, James Kennedy was the original prompt for this. He and I went back and forth via email because I was saying, “Hey, what would you like to see? What are you hearing?” I’m going to quote him a few times during this episode because I had things in my head that I wanted to put in this episode, but I felt like it was helpful to hear from him. One thing he said is, “How did SaaS do in 2008 when the Great Recession hit?” I have a couple thoughts on this, and then I want to pass it over to you to see if you have any other thoughts.
First thing is SaaS was barely a thing in 2008. There were so few. MailChimp was just becoming a thing. 2007 to 2009 is when Basecamp was two, three years old. What I would say is SaaS did a lot better than one-time sale products. I had a one-time sale invoicing software and sales plummeted 80% one month to the next, because there was no recurring revenue. Your revenue craters when you have one-time sell products.
Now with SaaS, it’s much more likely that your growth is going to stall. Either your trajectory is going to flatten, or your revenue could completely flatten out, or even start declining; but it should be a more gradual decline, unless you’re in an industry that’s uniquely and deeply impacted by this. If you’re serving retail, if you’re serving in person events, software for schools, there’s a whole list of industries that are going to be pretty devastated by it. Other than that, you’re going to be impacted. It’s not going to be like a lot of the businesses in the world are going to be impacted.
Einar: I think that’s true. I saw that note come through, and I was like, “2008? I don’t really have any context for SaaS in 2008.” That was a year before I went to YC and we were building a mobile app for the consumer. I wasn’t that glued into the SaaS at the time, but it makes sense to me. I mean, that’s what we’re seeing in the people I’m talking to, is anything, which needs to go on a budget now is getting serious scrutiny versus something that’s already recurring. Yeah, you’re definitely going to see cuts. Well, there are some exceptions, but I don’t think there’s really any business that’s not going to see some sort of a damage in terms of revenue, top line, and profit, if we go through a recession that’s anywhere near as deep as what people are projecting.
To give you context, I think it was Goldman Sachs, who were saying that they think Q2 2020, the GDP is going to drop to a negative drop of 24%, which hasn’t ever happened before. I think it just makes sense that people are going to look very hard at pretty much their entire credit card bill, what are their accounts payable, and they’re going to be cutting across the board just as a defensive crouch. I think that’s inevitable.
Rob: Yeah. In the Great Recession, the GDP, at least in the US, fell 4.3% from its peak. What’s interesting is it’s not apples to apples because it’s just such a different thing. This COVID thing is an unnatural brake lever, I think of it like brakes on a car. It’s unlike anything we’ve ever seen. It truly is unprecedented. If it slows down super suddenly, what is the impact of that? There have been no experiments like this.
Einar: It’s clearly unprecedented. I’ve just looked at what the stock market’s doing. It’s never fallen this fast, this quickly. Even 1929 didn’t go down this quickly. Same thing with 2008, didn’t happen that quickly. Now, that could mean more than two things. We’re in for a much worse time, but it could equally mean it went down so quick, it’s going to bounce back up. Yesterday, the DOW was up 11% or something, completely bananas. It really is uncharted territory in terms of what we’re dealing with because it’s global. You can’t even say, “Oh, I’m going to focus on a different market.” There are hardly any markets left that aren’t going to be impacted by this.
Rob: Right. I think we don’t need to panic. We need to keep clear heads and we need to plan realizing things could get worse. We don’t know how worse but it’s keeping the level head. That’s my first point. I have six points that I want to cover today. Actually, it looks like I misnumbered them. I actually have seven points to cover today. The first is don’t panic, clear heads will prevail.
James Kennedy asked me, “How do you manage mental health at a time like this?” Frankly, I have been talking a lot and listening to my wife, Sherry Walling. She has more requests for webinars and podcast interviews in the last two weeks than in the past two months combined. She has been thinking and talking about how to keep people from being consumed by their anxiety and stress for decades. She was a trauma psychologist. She became in essence a founder and CEO—coach is not the right word—but advisor. Follow her for a couple months, I get nothing out of this. She is just an even keeled mind and a trained mind who…
Einar: She talks to you off the cliff a fair amount of time.
Rob: Exactly. She puts out a podcast every Friday. It’s called ZenFounder. She’s @zenfounder on Twitter. She and I just did some MicroConf on air last Thursday where we talked about this exact question for about 30 minutes. I just peppered her with questions, and we got a bunch of questions from Slack too. She was just giving strategies about what it’s like to be at home with the family or without the family; how things are different; why we’re stressed; how to give yourself some leeway; how to feel better about it. She will do a much better job than Einar and I will, to calm you down.
Rob: Point number two is no business is recession proof. It depends on the cause and the unique complexities of the recession. One piece of information I have, don’t ask me how I got it, but there’s a major podcast app that its usage is down 25%. I was thinking, “Well, isn’t all the remote stuff going to explode?” The person said, “I think it’s down 25% because people are not commuting to work. They’re just not opening the app because they’re not in their car.” It never occurred to me that that would be a thing.
Obviously, we keep hearing about how Zoom and their competitors are going to be doing well. Remote pair programming tools to pull in their competitors, people dealing with podcasting, recording podcasting, video live streaming, et cetera. If you’re in that boat, consider yourself lucky. You didn’t do it on purpose, COVID is not your thing. Don’t feel guilty. I think I talked to a founder who said, “I actually feel guilty that my business is growing during this time.” Don’t feel guilty, take it as a blessing. I would say use that to take care of your family and your team, and hopefully, help others during this time.
Do you have thoughts on this, about the recession proof and about certain things getting hit harder versus easier?
Einar: Just previously, I fundamentally think there are some things that will do well, but I think that’s in the minority. Pretty much everything is going to see a hit across the board. That’s sort of almost the definition of recession, people are spending less money. Whether it’s because directly related to the virus risk or just the sort of fear and uncertainty.
I think one of the main things that people are struggling with right now is there are credible people that say “Actually, this is completely overblown and it’s nowhere near as bad,” and there are also equally credible people who said that “This is just the start. It’s going to get much worse.” That sort of aperture of uncertainty is really damaging to businesses, and to people’s willingness to spend money and invest in new stuff. Even though most likely, it won’t be either of those extremes and hopefully, serving on the downside, I think just that uncertainty is likely to stop people reconsider, downgrading, spending less money overall. I think that’s going to impact very broadly.
Rob: We’ve been thinking a lot about this because we have companies that we funded, we have companies in our portfolio. Frankly, I’ve had tons of friends and all this stuff in the SaaS space. I’ve been having a lot of conversations, but you and I sent a letter to our portfolio companies. A lot of it was this kind of stuff, “Don’t panic, be prepared for a downturn.” This number three point, I think I took directly from there. Be cautious and be prepared to make some cuts earlier rather than later.
I’m curious to hear your thoughts on this because James Kennedy said he had heard some folks talking and people giving advice, I assume, in Slack channel and stuff. He heard someone say, “Cut 20% of your overhead now and plan for a further 20% if it gets to that point. Know where the savings are going to come from before you need to make them.” What are your thoughts on that?
Einar: I have two thoughts. First of all, I think particularly for a US company, it’s very important to understand what’s in this Relief Bill that’s going to get passed, because there’s some specific provisions there that relate to payroll. I haven’t read the text yet, but I think it’s likely to be something like, “If you have people on payroll before March 1st and you have the same amount of people on payroll after April 15th, then the government’s basically going to give you either a grant or a loan potentially with forgiveness options if you don’t fire those people.” That’s sort of an unprecedented situation, although that’s what’s been happening in some of the other countries, like France and the UK.
Frankly, the government has said “Don’t fire anybody, we’ll get through this. We’ll pay their salaries for 80% of their salaries for however long.” That’s effectively what this Relief Bill tries to do. That’s the one caveat I would come with up front. Even if you let people go right now, as long as you put them back on payroll by April 15, you might still get this benefit. That is probably something worth… Making sure you don’t screw yourself, cut in a way, and that essentially the government will pay to keep your payroll the same. That’s one thing.
My other point is putting that aside—that’s not going to fit every business and not everyone’s in the US—cutting 20% and then plan for a further 20%, my one objection there is particularly if we’re talking about cutting people, then I think it can be extremely demoralizing to a company and to a company culture. This is like death by a thousand cuts. I feel like certainly in prior recessions, 2008, 2000, 2001, I think the companies that did the best are the ones that did a deep cut early, but then didn’t have to do anymore; versus the cut a little bit here and a little bit there, and then essentially just quickly see that sort of morale erode. I think that’s my one concern with the cut a bit here; the 20% doesn’t sound like a bit but a deep cut.
I was just talking to someone the other day. They remember in 2008, they basically cut 70% of their staff, overnight in the first cut. Everyone was saying, “What are you doing? You’re crazy, you’re overreacting,” but that turned out to be the right approach, because they never had to cut again. They got profitable and they started growing again. Versus the people who cut 5%, then 10%, then 10%, and then 5%, it completely eroded morale in the company. You have to have cash and cash is king; but particularly if you have employees, it’s not great to come to work and just wondering like, “I wonder who’s going to get cut this month?” That’s my one thing. If we’re just talking overheads—software packages or whatever it is—sure, that’s easier, then I can understand.
Rob: Yeah, that’s where it gets tough. Can you get 20% out of non-employees? It depends. Do you have a lot of contractors that you could cut back on and bring stuff in house? There’s a million ways to do this. I struggle with the pre-emptive cuts. I would run my companies at the leading edge of the present often. I think I have a tough time making cuts before I start to see revenue or leads. You have leading indicators of trials per month. I knew exactly, almost to the trial, how many we should have each day. If it was down, I was already starting to project the next month’s MRR is going to be this and that.
If you’re in touch with that and you feel like things aren’t dramatically shifting for you yet, certainly, I think, crimping the belt is worth it. If you can cut 5%, 10%, 15% of overhead, I think that’s great. I think I’m on the same page with you as soon as you start cutting people… If it’s letting a contractor go, or if it’s “Hey, we’re going to turn off these ads because they’re not really working that well right now,” or “There’s an agency running our ads, and we’re just going to back off of all that,” that kind of stuff makes sense to me. If you have a pretty tight knit team, and you start letting people go, as you said the death by a thousand cuts becomes a problem. I think you just want to be aware that as you go forward with this.
Einar: Yeah, I think that’s true. I wouldn’t start cutting in panic. I’m not saying that, but I think most businesses will start to see and be like, “Oh, yeah. This is bad.” You’re having conversations with people like “Yeah, we haven’t cut you yet, but following all my employees.” So, chances are they’ll cut you as well. There are ways to get indicators that you’re about to have a pretty severe downturn. If you need to cut, once you feel pretty confident that this is going to happen, then I think cut big and cut early. Probably err on the side of cutting too much, so you don’t have to do it again.
Rob: My point number four is to really dig into what’s working in the business still, and to cut and trim marketing and sales efforts that aren’t working today. This is kind of spurred on James said, “Is trying to continue doing sales in this environment suicide? We were about to start a new outbound sales campaign but now that doesn’t necessarily feel like a great idea.” What are your thoughts on that?
Einar: Again, I think this is entirely up to what kind of buyer you’re selling to and what you’re doing. Again, depends on how to get it, right? In some cases, if you have a kind of software, you’re doing enterprise sales to big organizations, okay, fair enough, everyone’s working from home; but maybe now they sort of have time on their hand to evaluate new options. If you’re up competing against some entrenched, very expensive on-prem software, and you are sort of the lean, slightly cheaper or even much cheaper—although not too cheap obviously—cloud provider, that might be a great time to be doing sales.
If you come along and you’re selling something that’s $15,000 a month and you’re cloud accessible, and you’re competing against a company that’s $50,000 a month, and everyone has to be in the office; then it’s a great time, let’s do it. In part because they’re probably still getting paid. They’ll be doing things, like looking at reducing their AP. In some cases, I’m sure that people have been thinking like, “We really hate this software. It’s too expensive. It’s cumbersome, but we don’t have time to replace it,” versus “Now might be the time.”
I’m sort of reluctant to give across the board advice about whether now’s a good or bad time to be selling, at least as it relates to B2B stuff. I think if you’re B2C, oh, that’s going to be hard. I would find it very hard to sell to the consumer right now.
Rob: Very distracted, yup. That’s the thing, if I were still running Drip today, I would take a long, deep, hard look at any type of marketing or sales efforts we were doing. I would be cutting earlier, rather than later. Oftentimes when everything’s in expansion, and we’re going up into the right, you can take the long that, and you can say, “Well, I think over the next 60 days, this is going to turn out. This ad campaign will convert,” or “We’re still working on things.” This is the point where I would be really dialing those down and easing away, especially things that are just straight spending money to get new leads because it’s uncertain right now how this is going to pan out.
There’s a lot of distraction. As you said the consumer side is terrible because all of us are sitting here looking at Twitter and the news feed all day. Aside from consuming grocery stores… The toilet paper manufacturers are making a lot of bandits. I just think there’s a lot of distraction. I’m personally not looking to sign up for a bunch… The only new software that we’ve been looking at or the new purchases we’ve been buying… Producers, Andrew and I, are looking at actually upgrading the Zoom account, so we can do webinars out of it and play around with this thing that does a live stream. It’s all remote stuff.
As we said earlier, there’s those edge cases—the exceptions that are going to thrive in this—but a lot of other folks back to your point. If you can offer a substantially less expensive thing, people are going to be looking to cut costs today. Other than that, it’s definitely time to really be thinking this through.
Point number five is, this is going to sound obvious, but take care of yourself and the people around you. I think that it’s our responsibility if you’re in a good position to help other people. I think you start with yourself and that’s your mental health and your physical health. Try not to get sick and just try to not stress so much about this, 24 hours a day. And then it’s your family, and then it’s your neighborhood, and your community, and your employees, your team as well.
To give an example, I contacted all my family members who I think may have been out of work—the folks who are working hourly jobs—a couple friends as well, just to make sure that they’re going to make rent. That they’re not too stressed. There’s probably going to be a bailout and a relief for them as well. I feel like those of us in a position to be able to do that should be doing that. I’ve been taking one for the team. We don’t tend to get a lot of takeout, but we’ve been doing it two or three nights a week, specifically from our favorite local restaurants who we know are just getting decimated by this. I’ve been given big ass tips to the drivers.
I feel like if you’re in this position, it’s time for generosity. Even better if you’re in a position to help doctors, first responders, they’re going to pay a price just with the stress and the trauma that they see. To be honest, I’m heartened by the efforts of large companies, like Tesla, who are basically refactoring the factories to make masks and ventilators. Who is it in Europe that’s going to start making hand sanitizer? It’s like Louis Vuitton or something.
Einar: Oh, Louis Vuitton and I think Anheuser-Busch just came out with it. Anheuser-Busch labeled a sanitizer product, which I thought was pretty funny. We’re doing the same stuff. One of our friends just bought a cafe three months ago.
Rob: Oh man.
Einar: It’s brutal. We’ve been getting lunch from them pretty much every day and tipping pretty heavily. He jokes that we’re basically up, keeping it alive for now, which I think is probably true. We’ve been doing the same stuff, like just ordering from our favorite restaurants, tipping heavily. I think all the weight that I’m going to put on I’m just going to attribute to personal growth during the coronavirus. That’s sort of my approach with the whole thing.
Rob: Yeah, for sure. If you’re not in that position and your business is completely crashing around you, obviously, it’s not responsibility for everyone. It’s a responsibility for folks who I think have the means to do it and are in that position. Certainly, your team members are going to need it but like your customers, too, right? You may have customers who come and if you know your customers well, you’re going to know the ones who are maybe trying to pull a fast one on you. You’re going to know the customers who come and say, “Look, I can’t afford it right now. My business is cratering.” Can you work with them to keep their data around? Whether you comp them or you give them a big discount, or you give them a “Here’s $10 a month, just to keep your data.”
This is the time to kind of be understanding and to help one another out, because we’re going to need that coming together. On that note, I think a lot about team members, your employees. Some people I’ve talked to are really, really stressed about COVID. I’m not. I’m, normally, a very anxious and stressed person, but for some reason, I’m just in a good position. For whatever reasons, I’m not freaking out about it; but I talked to folks who I respect and like, they’re extremely, extremely stressed about it. It’s just that different people react differently. It’s the bottom line and so really be aware of that as you’re talking to your teammates, your team members.
Rob: Yeah. I think people handle this thing differently. I’m not super stressed either, despite what you might see me screaming on Twitter. Actually, it just occurred to me the other day, this would be a very different scenario, if the hazard curve was more similar to a typical virus. If children were equally at risk as seniors, then I think it’s a blessing that we’re not in that boat, because then I think you would see mass exodus out of the cities by now. People definitely handle it differently, for sure. I’ve noticed that both in my professional and my personal life.
Einar: Yeah. Some people are just straight stressed by COVID. Most of us have our kids at home all day right now while we’re trying to get some work done. Some people aren’t used to working from home at all. Frankly, everyone needs a break right now, including you as a founder. You don’t have to be 40 or 50 hours a week productive right now. Give yourself the leeway to be 10 hours a week productive.
Einar: If you can be 10 hours a week productive, you’re doing amazingly well. That’s my view.
Rob: Yes, not only the physical distraction, but it’s the mental distraction, the ongoing burden, the stress level. Sherry keeps talking about this. She has a lot of clients, and everyone she talks to is just at a level of 8 out of 10 constantly. I think a lot of us are. Give yourself… It’s not the luxury, but it’s like…
Rob: Yeah, the permission. That’s the word. Give yourself and your family permission to do it. This morning, I was down with the kids for an hour and a half. As they were on their laptops, I was doing some work in the background. They were interrupting me constantly, which I would hate because I’m a super focused person when I work; but I was just giving myself and the kids permission to not be stressed while we’re at home. It’s easier said than done, but I think it’s something that we need to realize. We can’t be as productive as we were, and we aren’t going to be under these circumstances.
Every night when I go to bed, I am seriously thankful that I don’t work in a restaurant, or a factory, or own a retail store, and that I can work from home. We are, a lot of us, in better situations than everyone else and I’m thankful for that. My brother owned a fish and chips restaurant until about a year ago. He and I were just talking about it. He sold it a year ago. Good Friday is one of the biggest days of the year for them. “It could be worse” is what I keep saying to all of us. I tell the kids that, and Sherry and I talked about that. It doesn’t necessarily make it easier, magically, make it go away; but it puts it into perspective, which I think is something we need right now. It’s just to keep things in perspective.
Point number six I wanted to make is at times like these, in terms of your business, cash is going to be king. Right now having some cash in the bank and having that cushion is going to be super important, both to make payroll to keep the business afloat for any emergencies. The more cash you have, honestly, the better off you’re going to be.
As I said, it feels terrible now, but we’ll get through it, things will get better. There will be opportunities as we exit the recession in the stock market. I think of all the companies that came out of the last couple recessions. MailChimp was like 2007 to 2009 when it really started taking off. Twitter came out of it. Blogger came out of the 2001. Google, I believe, was kind of 1999, 2000, 2001. They all went up and then kind of lived through it. I even think of our friend Ruben, with Bidsketch. He started that in 2008-2009, right in the midst of this, but recoveries bring opportunity.
While it’s hard to think about that right now, we will get there and there will be opportunities in the stock market. I think a lot of us are watching that. I certainly have, I have a little bit of dry powder on the side. There will be opportunities in SaaS, whether it’s acquiring a company or just markets that are going to reopen and go quickly. If you’re set up to take advantage of that, and in a decent position to do it and you’ve weathered the storm. That’s where the real growth happens, is on the recovery.
My dad worked in construction for 42 years and my brother is still. He’s a project manager. When recessions happen like this, a bunch of construction firms go out of business because they just don’t manage their finances very well in general. They go out of business. The ones who hang on and make it back always have amazing, amazing big years when things are growing.
Einar: Yeah, I think that’s true. A little bit of cash in the bank is super helpful. This is probably your point seven. We’re going to get through this. I think there’s a lot of doom and gloom right now, but realistically, it’s not like we’re going to be in lockdown for 18 months to 2 years. That just won’t happen. There are too many things that are likely to work out in one way, shape, or form. That means that it won’t be as bad as some of the worst do mongers out there are currently claiming.
Rob: One question James Kennedy had asked me when he emailed us. He said, “When should you sit on cash and when should you go hunting for opportunities?”
Einar: That’s a great question. It’s a similar question to “When do you think you can time the bottom of the market?” I was watching the stock market jump up 10% yesterday. I could feel the greed. I was like, “Oh, I want to be in this market right now,” but it comes back to like “Cash is king.” I was like okay, but if I lose out on a little bit of a gain on the stock market, how upset am I going to be by that? Versus if it continues down, and I lose a six month cash cushion for me and my family, that’s much worse.
I tend to be slightly conservative when it comes to deploying capital back into the markets, and I think you do, too. Certainly, I think a lot of businesses right now are just sort of like, “Yeah, we’re fine. We’ll wait and see how bad it goes.” Do I think that right now there are an awful lot of amazing opportunities to buy businesses? No, I don’t think so. I think typically they come later in the cycle, to be honest with you.
Rob: There’s a venture capitalist in the Midwest who I was talking with. He was saying that the conversations he’s having are the founders who started raising a few months ago who don’t have commits, they have a valuation in mind. That is no longer the fact. The valuations have already come down from the investor side, but the founders haven’t realized it yet. That’s what he said. That I think is what’s happening right there.
If you got to buy a business today, people will still hang on to the valuation they had mined for their business three weeks ago. If we get three to six months into this, depending on how everything shakes out, there will be more opportunities long term. This is all aside from COVID. This is purely the economic and the stock market aspects of it. How I think about it is when should you go and look for opportunities? Not yet, not anywhere close. I’m going to be sitting on cash for quite some time. I don’t tend to try to time the bottom of the stock market. I never make the bottom. I get it after it’s kind of bounced, and coming back up, and I see the economic signs change.
There’s a bunch of leading economic indicators. Much like in a SaaS app, when I look at unique visitors, I look at my trials, I look at trial conversion, there’s all these things that are ahead of MRR. There are leading indicators for all these things too. Before the recession is “over”—reports declared over—there will be some leading indicators. Those are the types of things I think you can look at. I don’t know if there’s an easy answer to go hunting, but I certainly think that there are always opportunities coming out of economic downturns like this. It’s unfortunate, but it is cyclical. That’s how economies work.
Last point, point seven is just reminding you that we are going to make it through this. It feels terrible right now and it is terrible. The health crisis is not something that any of us could even imagine, but things will get better. We will figure this out. While it’s serious and tragic, we need to keep a level head. We need to kind of keep pushing things forward to take care of ourselves, our families, our communities. Again, it comes back to staying mentally healthy and not stressing so much about it, not thinking about it all the time. With little new information or no real new information, it doesn’t help to just think about something all the time. Worrying doesn’t solve anything. That’s something that Sherry and other psychologists have kind of drilled into me over the years. Worry with no new information, there’s no value to it.
Anyways, I hope as a listener, you got some value out of this. Even just hearing a couple people think through how we’re thinking about it, and hopefully, you take away a piece of advice or two that helps you feel better as we look ahead.
Einar: Yeah, I agree. Like I said, I’ve been watching this probably for longer than most people in terms of the COVID thing themselves. I think in general things just will get better. It has a death rate of 5%. There’s just no way that 100% of people will get it, and there’s nothing we can do, and we just got to lock up in our houses for 18 months. That’s just not how these things work out. I’m not any virologist, we’re already seeing trends that suggest that this is bad certainly, but it’s not world civilization-ending. Spending all your time on Twitter is not necessarily all that helpful.
Rob: Yeah, so we hope you stay healthy. Thanks so much for joining us this week on the show. We will see you next week.