This is a round table discussion with Craig Hewitt (founder of Castos), Einar Vollset (cofounder of TinySeed), and myself. We are in three different cities on two different continents, so we have plenty of different perspectives on the COVID-19 crisis. We are talking about our own businesses and the advice we give to other founders. We also talk about the payroll program, and whether we think it’s going to be helpful to small businesses and startups. We share our tips and experiences working from home, for founders who may be just now transitioning to a remote team, and we discuss Stewart Butterfield’s Twitter feed, talking about the human side of experiencing this pandemic.
Listen to get some insight, hope, and fresh ideas on being a startup during COVID-19.
The finer points of the episode:
- 8:09 – Advice we all have for startups during the COVID-19 crisis
- 12:51 – Common mistakes we see businesses make working from home
- 14:42 – The main things that change when your team goes remote
- 17:37 – The payroll protection program in the USA and what this could mean for your business
- 28:04 – Stewart Butterfield’s real-time experience of COVID-19 and how it resonated with each of us as founders
- 36:46 – Some reasons to feel hopeful about business right now
Items mentioned in this episode:
- How Apple Is Working From Home
- Bosses Panic-Buy Spy Software to Keep Tabs on Remote Workers
- MicroConf article on COVID-19 business relief
- Stewart Butterfield’s Twitter feed
- Craig Hewitt’s Twitter Account
- Einar Vollset’s Twitter Account
Rob: Welcome to this week’s episode of Startups for the Rest of Us. I’m your host, Rob Walling. This is episode 493. It’s a Startup Roundtable with Craig Hewitt, Einar Vollset, and myself. Einar was able to fill in last minute, I had another guest who unfortunately had to cancel. Craig was willing to work with me to shift times around.
It’s an interesting discussion because we’re located in three different cities on two different contents, so we’re able to give each of our takes on how things are in our city, how they feel amid the coronavirus pandemic. We talk about how our businesses are looking and reacting as well as advice we’re giving to founders. We talk about the shift to work from home, look at the Payroll Protection Program, and talk about the fact that essentially, that money has run out as of today when we’re recording.
Then we dig into a tweet thread of a really interesting day-by-day account of Stewart Butterfield, who is the co-founder of Slack. He talked about how they’re reacting to it and all of that stuff. It’s a really interesting show today. I’m glad you’re here to check it out, and I hope you enjoy my conversation with Einar Vollset and Craig Hewitt.
Welcome back to another Startup Roundtable. We’re going to talk about a variety of topics today. I’m really excited to have my two guests on the line, Einar Vollset, co-founder of TinySeed. You and I talk quite a bit, but it will be fun today to get your opinion and thoughts on some stuff. How are you feeling today?
Einar: Doing pretty good all in all. Still locked down, but what can you do?
Rob: You’re calling to us from Santa Cruz, California.
Einar: That’s right.
Rob: My second guest is Craig Hewitt, founder of Castos. Podcast listeners have heard from you many times on this show as well as on your show Rogue Startups. How’s it going today, sir?
Craig: Doing well. Thanks, Rob.
Rob: Calling to us from France, so we’ve got a pretty good perspective. A lot of time zones on this call, and three different cities that are probably in three different phases of this global pandemic. I’m curious, Craig, from a personal perspective—and I want to walk through some personal stuff, and talk a little bit about business, and then we’ll get into some news stories. Personal perspective where you are in Annecy, France, I mean you’re relatively close to Italy, I believe. I guess you’re like a country over, but how is it there? Are you wearing masks when you go outside? What’s the state of affairs and the thinking, the mindset there?
Craig: We definitely wear masks when we go to the grocery, and that’s basically all we’re allowed to do. The country France only lets people leave for certain work-related jobs, to go to the grocery store, to run necessary errands, to go to the hospital, or to do some exercise outside. For us, where we live, it’s within a kilometer of our house. You have to carry this signed piece of paper stating why you’re leaving on that day at the time you leave. I go to the grocery store once a week, and that’s it really.
We’ve been like this for five weeks almost now, then we have another three weeks left. Mentally, the hardest part is just feeling sad for myself and for my family. My kids miss their friends, and they’re only talking to them on the phone, and that’s not how kids should be. At the same time, I feel really, really, really fortunate that work is relatively normal. I work from home most all the time—I miss my co-working space—but that’s a luxury, really. We have a lot of friends that are doing really bad financially and professionally. I feel really fortunate that at this point at least I’m not, so that’s the silver lining.
Rob: You said there’s three more weeks of self-quarantine—or quarantine in essence—do you feel like the gates will open up again and you’ll be less restricted, or do you think they’re going to extend it at this point?
Craig: I think that May 11th they’ll open some things back up, but it will be very, very, very slow. The analogy I heard is that it will be the opposite of how we got into this total confinement. First, it was don’t go out unless you have to, and then it was schools are closed, and then it’s restaurants are closed, and then everything is closed. I think it’ll just be the opposite roll out of that starting on the 11th, but I don’t expect our kids to go back to school properly for the rest of the year, which is the first week in July.
Rob: It’s a pretty common sentiment. Einar, your kids are confirmed here in California, and schools essentially—I was going to say canceled—but really, it’s home learning and distance learning. That’s through the rest of the year, through the rest of the school year?
Einar: Through the rest of the school year, yeah. They made that call two weeks ago. I thought it was borderline a little too early to make that call, but it’s what we’ve been expecting as well.
Rob: Einar, how about you guys? I know you live on a small farm in essence. You have land that you can walk around and be in your own property, but when you go to the grocery store, are you and your family wearing masks, or is it only you going out?
Einar: It’s usually just me going out just because I’m a complete extrovert, and so I need to see people even if it’s through a mask. It’s funny. It’s been gradually ramping up here in terms of how seriously people are taking it. I noticed a couple of days ago is the first time I went to Whole Foods, and I didn’t see anyone without a mask on, which was quite surprising. I mean, really the main thing here that we’ve noticed is that Santa Cruz is a big surfing spot obviously, and they actually closed the beaches here temporarily over Easter and actually banned surfing in all of Santa Cruz County, which some of the locals didn’t take too kindly to.
Rob: That’s very surprising. I know the culture down there, and we used to vacation there when I live in California. That is—as we say a lot these days—unprecedented. It has no precedent. It probably hasn’t been done since some pollution or something happened years ago. How about you for the prediction, when you will be out and about again with less restriction or things will start opening up again?
Einar: Early May is when things will start to get sort of normalish. We still don’t have the same kind of very strict lockdown. You’re still discouraged from going places, but there’s still a fair amount of people out and about social distancing, but still, they’re not staying within a mile of their house or whatever. I don’t know how they’re going to get back into it. The main question really is what are they going to do with the schools? Because everything pretty much hinges on schools like the economy.
You can say whatever you want about getting people back to work and things, but the fact of the matter is if there’s no school to put your kids in, the economies could not go anywhere near back to normal. I don’t know if anyone is actually looking at like—are people actually studying what’s going home with kids. Is it safe to put kids back in? Are they actually carriers, or are they just asymptomatic? I don’t know. That’s the main unknown for me really right now.
Rob: Here in Minneapolis, it’s similar to California in that we don’t have to carry papers like Craig said. We are discouraged from going out. I do go to the grocery store about once a week. We’re lucky to live across the street from a lake, and there’s walking trails, and paths, and bike trails, and stuff. We do get out and about and get our exercise. I was not—until maybe last week—thinking about wearing a mask until the CDC made that pronouncement. We don’t have masks here, so we’re going to have to make our own.
I haven’t been out aside from just going to the lake where I’m probably not going to wear one just to walk across the street, but Sherry said she went to the store the other day—I believe it was Whole Foods as well—and she said almost everyone there had a mask. It feels like a similar turn in there. In terms of my prediction, I think I’m on board with you guys as well. May 4th, I think that’s a Monday, and I believe that’s the day that Minneapolis is supposed to currently schedule. Right now, what is it? April 16, so that’s still two and a half weeks out, but we are scheduled to start having some things reopen.
I’m curious to turn it more to business and company stuff. Einar, with TinySeed, we have 20-something portfolio companies as well as we run TinySeed itself and have a small team there. Obviously, we’ve been impacted by the MicroConf postponement, and that’s been a big effort to figure out when the new dates are. We did, just recently, announce that it was moved to mid-November. We have to make adjustments because then MicroConf Europe is three weeks apart.
If you go to micfoconf.com, you can get all the details of that. Aside from that, how have you seen the companies—the startups that you advise, or that you’re involved in, or that you’re an investor in—how have you seen them acting? What advice have you been giving to those folks?
Einar: It’s very dependent on what industry you’re in pretty much like what industry you’re serving because it’s been all over the map. There’s been a small handful that have gone from doing great to a 95% drop in revenue pretty much overnight. Obviously, those guys are struggling and really scrambling to get whatever cash flow they can in the door. I spend a fair amount of time helping them think through and navigate the relief efforts that are available to them, whether that’s PPP, or EIDL, or really whatever there is in terms of bringing in private investment capital as well.
Then on the flip side, there are a small number of companies that are doing incredibly well. Like with Craig on here is doing well. It’s a good thing that more people want to start doing their own podcast if you’re a podcast hosting company. It’s been very bifurcated in the sense that there’s sort of middle because the companies that we invest in, there’s a middle that’s doing fine, and slightly nervous, and a little bit down perhaps, and probably saw the worst of it like cut all the expenses probably about a week or two ago. Then there are these two classes of other companies, one that’s doing really well, and one that’s doing really badly.
It’s been all over.
Rob: How about you, Craig? I guess we got a little glimpse in there. I have inside information and know what’s going on with Castos since you’re a TinySeed company, but how has this been impacting you, the business, and maybe even your team’s mindset?
Craig: I think starting with the team is apropos because it is the most important thing that we have. The most important asset is our team, and the people that are moving the platform forward, and serving customers, and helping spread the word about podcasting in general and our solution. We’ve always had a lot of focus on one-on-ones between me and the team and weekly team meetings, and those are just a lot more important now. The focus of those meetings is literally, “Hey, how is everyone doing? Is everyone healthy? Is everyone’s family healthy, and are they happy? Is there anything that you all need?”
Because it’s just important on a personal level, but then if we don’t have a good team moving the ball forward, then we’re sunk just like Einar was saying, these companies that are really struggling. That’s really solidified, the most important thing for us is the team. That’s been nice to be able to provide that structure and backdrop professionally for our team. I think that we’re just fortunate to be in an industry that’s growing, in general. Then right now, when people can’t go anywhere, they finally decided to start a podcast.
We’re in the same boat as webinar providers, and people like Zoom, and these other remote serving, remote tools, and purposes industries. The thing we take away from it is that it’s a trend that will continue for a long time. This will probably accelerate that and bring companies that weren’t going to be hybrid remote, or remote first, or whatever into that fray. We think this will continue going forward. There are companies that wanted to rip the Band-Aid off but were scared to, and now they had to. They won’t want to go back because their employees love working from home and doing podcasts instead of in-person meetings and things like that. I think that some degree of this will continue for a lot of companies.
Rob: It’s interesting to me. There are a couple of articles that we can actually dig into right now because I have a topic that I want to touch on about this whole working from home thing. This is my mindset and it’s probably to my detriment, but once I’ve come to a realization about something like, “Hey, working from home works.” I’ve been doing it for more than 15 years actually, maybe 18 years—on and off. I worked in a couple of office jobs in there.
Of course, working from home is a thing and works. It’s like when people discover bootstrapping and they’re like, “Wow, you can bootstrap a SaaS.” It’s like, “Yes. We’ve been talking about that for 10 years.” It’s just still so odd to me that the rest of the business world is just catching up to this. Jason Fried probably feels similar. It’s like, “Guys, we wrote a book on this years ago.”
I have a couple of articles I passed you guys—how Apple is working from home and it watches through their stuff. There’s another article about bosses—not Apple bosses but just bosses in general—panic buying spy software to keep tabs on remote workers. Einar, you’ve worked from home for a long time. What do you think about watching these big companies? Some of them seem to do it relatively well, but a lot of them seem to be fumbling the ball as they move towards working from home.
Einar: I was always surprised because, again, most of the companies that I surround myself with—they never really usually had offices anyway even if they had the inclination to eventually get there. They usually had to start out in someone’s house or whatever. I guess the DNA of doing work from home, or at least working remotely, or having a distributed team was always built into the companies that I dealt with day-to-day. It’s quite surprising to see these companies, like I said, scrambling to put things in places and being super nervous about it.
I see some of it for the work I do with discretion on the sell-side. I sometimes talk to potentially acquiring and they’re horrified when I tell them, “Yeah, there are 25 employees, and they’re distributed all over the world, or at least all over the United States.” Certainly, on that side, people are not used to it. It’s just a reflection of the environment that we, or at least I move in in the sense that I don’t get a lot of exposure to these companies that now seem to be scrambling.
Rob: Craig, you run multiple remote teams and have been remote for many years. Something that I think about this is I used to have an office, and I would hire people to be in the office. I had certain criteria in my head of like, “I’m hiring a worker or a co-worker who I’m going to work with on a day-to-day basis in person.” When I hire remote, I think about different things. I almost have different criteria in my head.
I can imagine if you had hired a bunch of folks to work in an office and suddenly are thrown into the chaos of having to move everyone remotely, that would be complicated. I believe that you hired folks at your prior job before you had started your companies, and I’m assuming they probably worked in offices because I know you were in sales. Did you feel like you have that similar dichotomy of hiring remote versus hiring someone to be at an in-person job?
Craig: Yeah, it’s interesting. My roles before we’re always in the field if you will like in field sales, in field research—I was in the medical field—so going to hospitals and doctor’s offices. It’s kind of similar—I never thought about this—but it’s kind of similar to a remote team in that the most important thing is accountability for me now. When we hire somebody, maybe the first thing is like, “Can you communicate well?” But then the second one is accountability and autonomy.
That was very much the same before because you’re a team of ten people before covering a large metropolitan area or something, and you all have to be able to take care of the things you said you’re going to take care of, and communicate back to the team, and organize. It’s the same thing here, right? With Castos, we’re five people in four continents. I can’t and don’t want to keep track of everybody all the time.
The most important thing is just, “Hey, this is the game plan. We have a meeting every Monday. This is the game plan for the week, everybody’s on the same page, and if you have any questions? Okay, cool. We’ll talk next week.” Hopefully, all those things got done. If not, we have Slack and all those kinds of stuff. That is the most important thing is people to be able to work independently.
Rob: Written communication becomes a huge deal when you’re remote versus if there’s ten of you sitting around a table much like we were in the drip offices. I’m here in Minneapolis, a development team of 10. We were in Slack, but you didn’t need to type stuff to communicate for the most part. You could just walk up and have a conversation off-the-cuff all the time, and switching to remote then it all becomes in Slack, and email. Therefore, having that ability—that written communication—I know that is such a value that I’ve always upheld.
When I hear people say, “Hey, you know what makes a great developer? The ability to write code and also the ability to communicate in writing.” I think that’s so true. In any role, the secondary factor that I like to evaluate is the ability to communicate well in writing and clearly, so it’s not going back and forth a lot. Do you find that, Craig, on your team? Is that a requirement that you have when you’re interviewing people? Do you feel like it’s a critical piece to be running a remote team?
Craig: Yeah, absolutely. I think the Automattic folks have written about this that they start a lot of their interviews over chat, and we do the same. It used to be Skype, but yeah, we would have a bit of a chat over email or on Skype in written form, and then start a call. That’s really powerful because if you can’t communicate cohesively in written form, there’s no chance especially to work asynch. If everybody’s in the same time zone give or take, it’s okay, but we’re over six time zones and that’s a mess.
Rob: Next story I want to talk about is the United States Payroll Protection Program as part of the big stimulus package. If you’ve been following this podcast, you’ve heard us talking about it. We did a live stream special, Einar, and Brennan Dunn, and I a couple weeks ago talking about the government stimulus. I’m curious, the Payroll Protection Program, the idea behind it—if you haven’t heard—is it gives US companies that qualify small businesses a loan for two and a half months of payroll. Then if they don’t lay anybody off for a certain amount of time, then they get that forgiven—essentially becomes like a grant or a gift, it’s a stimulus.
That’s the high level. You can go read about it. We actually have a link on microconf.com that Einar has been updating. It’s actually bringing a shocking amount of traffic to the site right now straight through Google—just organic results. Einar basically read hundreds and hundreds of pages of government regulations so you don’t have to. I’m curious, Craig, did you apply? Were you able to apply given that you have a US company, but you don’t live in the US?
Craig: No, I didn’t apply. My salary does not qualify, and the other two US-based folks that we have are 1099, so they don’t qualify either.
Rob: Got it. I believe they can apply on their own. I’m curious, your take on the stimulus overall. You can comment on the US stimulus, which was $2 trillion dollars, there’s a lot of countries doing stimulus. Do you feel like this stimulus is going to work? Do you feel like this kind of stimulus helps, that it’ll fix things, and it’ll help, that it won’t? What’s your take?
Craig: I’m glad we have Einar on the call because I know he knows a lot more about this than I do, but my take—as a relative layman to macroeconomics—is that the stimulus is designed to prop up companies for sure and more so Wall Street than the people that really need the money right now, which are the people that don’t have jobs. Because I think so many people have already gotten laid off.
These companies that are getting PPP, or EIDL, or whatever may not go rehire them. I know that’s the terms of some of the forgiveness and stuff, but a lot of these companies have a lot bigger things to worry about than paying back a 1% loan versus it being forgiven, and spending that money on things like rent, or paying salaries to founders, and keeping the lights on.
The other side of that is the $1200 that people get personally. We have kids, and so we got a little bit more for the direct stimulus, but no, I don’t. You see the stock market is up today when they announced five million people filed for unemployment.
Einar: Only five million, Craig. Come on.
Craig: It’s just crazy. I know in the TinySeed’s Slack there was a picture of the Titanic sinking, and the back end was all the way up in there. They’re like, “Wow, look. We’re going up, and we should be going down.” That’s exactly how I feel is everybody thinks this is okay, and we are on ground zero of this of having small businesses. I see it left and right with my friends and people that I work with that are just going through a ton of pain. No, I don’t think it’s enough.
Rob: How about you, Einar? You’re my resident expert that I go to for this kind of stuff.
Einar: Just because you didn’t want to be bothered to read all those hundreds of pages of legal mumbo-jumbo, and keep up with the treasury guidance, and whatnot.
Rob: I really did not. Not at all interested. I would go to you for stimulus, what are your thoughts on it? You’re just a very thoughtful person on this type of stuff. Do you feel like it helps? Do you feel like it works? What’s your take?
Einar: It’s important to understand there are two different classes almost of stimulus. There is this what Craig’s talking about—or at least a perception of—which is more like a bailout or what feels like a bailout of Wall Street to a lot of people. This is essentially quantitative easing. This is what the Fed is doing in terms of effectively buying—basically printing money and putting it into the market to keep liquidity going. The size of that is pretty incredible, in my view.
Just for context, they had quantitative easing during the financial crisis. They spent—however many billions of dollars it was—over about eight months. There was a lot of political hoo-ha around the time whether that was appropriate, or too much money, or all this stuff. For the last few weeks now, we’ve been pumping out that much money into the market every week. What we did during the financial crisis over eight months, we’ve been pumping out every week or so for the last several weeks.
On top of that, there’s some other stuff. The Federal Reserve isn’t actually allowed to legally buy corporate bonds—so high-yield bonds or whatever—but they somehow managed to engineer their way around that. We’re now in a situation where the Fed is buying corporate debt. Even in some cases high-yield or what’s sometimes called junk debt. In a lot of cases, a lot of people are saying, “Why should the Fed be doing this? This is bailing out an economy.” Most likely, it’ll get to the point where now the Fed’s buying equities of companies just to prop things up. That’s where you hear these several trillion dollars-worth of cash, all this stuff being spent.
The second part is the smaller business stimulus part of it, which is the PPP and the EIDL. I actually just heard this morning that PPP just ran out of money. They only designated $349 billion dollars to it. They don’t seem to have got their ducks in a row in order to actually refill that, which is devastating and a political failure. From what I was looking through the stimulus packages and what was going on, I always thought that this should have been in a grant just administered by the IRS.
The IRS has the data that these banks are asking for anyway. If you look at what the documentation required, they were asking for Form 941, which essentially the IRS already has, so why couldn’t the IRS have just looked at that already and just issued the grant? That would have been much more efficient. They need to get their act together, and obviously refill this program—even though it would have been better as a grant—but this is what we have right now, and they need to refill it.
In terms of how effective it is as a stimulus, I think it can be pretty effective, but it needs to just put more money into more pockets sooner. I see some of the zeitgeist out there like, “Only take the money if you’re about to run out of cash and you were in dire straits.” I’ve been screaming it on, “That’s not how it should work. You need as many companies as possible to grab this money, and that’s how you basically keep the economy from shedding six million unemployed every single week for weeks and weeks on end.”
That’s my view, but of course, that does require Congress to get their act together and actually refill the program.
Rob: Do you think the fact that the PPP ran out is a sign that it’s not going to help very much or what’s your thought there?
Einar: It obviously is helping a lot because it speaks to the demand, right? It speaks to how many companies are in distress and asking for assistance. That’s obviously helpful, but there are two ways you can screw that up in my mind. One is you discourage companies from actually applying either by making it very complicated or having situations where people can’t get a bank relationship that would allow them to apply in the first place, which is still true. I still know people who—as of today—their funds have run out, but they don’t have a bank that will allow them to apply. Then they can’t access the funds.
That’s one side of it, but I also think the other side of it is discouraging companies from applying—or somehow making this shame-base that you shouldn’t be doing it—has almost the same effect on the economy overall. It’s a mistake to discourage companies from applying because every day counts.
That’s the thing, the stimulus needs to be the right amount of money at the right amount of time. If it takes two weeks for Congress to get their act together, this will be devastating for small businesses. It just will be because people will then just lose faith. They’ll give up leases, they’ll fire people, and it’ll be much worse than it needs to be.
Rob: My experience applying was I’ve been a Bank of America customer for 30-something years. With my business, probably close to 20 years I’ve had an account. The day that PPP opens, I get the email, and I click on the link to apply, and it has me log in to online banking, and it says, “You do not have a loan relationship—a lending relationship—or a credit card with us, so you can’t apply.”
I was thinking to myself, “Are you kidding me?” I’ve been a customer for this long and then within—I don’t know—3-4 days, they turned that around. They updated their applications such that you could say, “Yes, I have a lending relationship, or no, I don’t.” Who knows? I’m guessing they’ll give priority to people who have that relationship with them, but then even yesterday or today, I got another email asking for more info. I don’t know.
I have no idea if I’ve missed the boat already by not getting because I didn’t have all the docs or whatever. It felt a lot tumultuous in the sense that every bank handled it differently. Some banks aren’t ready, and some banks aren’t hosting it so people are unavailable. To your point of was there just a better way to organize this if you’re going to try to forgive it anyway?
Einar: Definitely was. I definitely think there was. It’s like listen, the IRS already knows what your payroll was at whatever period. They could have looked at it because you have to report it quarterly—at least in the US. You have to report it quarterly what you’re paying your employees, what you’re paying yourself, what’s the sales, self-employment taxes. If you look at the applications that are going in, these are exactly the government documents that the banks are requiring.
Why did we put the banks in the middle of this? Some of them are just aren’t set up for it, and then we have to pay, obviously, fees to the banks. It’s like on the $349 billion dollars, they think $10 billion will go to banks just to manage the process, which that seems, I don’t know, inefficient to me.
Rob: Economy goes to hell in a handbasket and the banks maybe make out well like they did in 2008 with the bailout. It’s pretty interesting times these days. Did you guys check out the Stewart Butterfield? He had a long thread. It was his week leading up to the self-quarantine. I sent you guys a link in advance. I’m curious, Craig, as you read through this thread, he’s basically giving a day-by-day account of, “Hey, this end up being my last time in a restaurant,” and discussions with senior leadership and stressing about what’s going to happen.
Then also looking at Slack—obviously a remote chat tool—and their usage just up and to the right in an insane way much like we see Zoom doing. Which pieces of his story resonated with you as a founder?
Craig: It was a lot more of the personal things because we can’t do anything and haven’t been able to for a long time. It’s the personal stuff like last time I went to a restaurant, and then we went and bought some flowers, and all these kinds of things. We talked a lot about that like, “Hey, I’m glad we did these things when we could because we can’t now.” Even when things open back up—who knows when that’ll be officially—a lot of those places won’t open back up right away. Then talking about stimulus and how that rolls out and stuff, a lot of them will never come back.
On a personal level, I think that I’m not a big, “It will never be the same thing,” but I think some things will never be the same. Some of our favorite restaurants won’t have gotten stimulus, or not enough, or not quick enough, and just have to go do something else. It is worth taking some time now to reflect on the things we did, and enjoyed, and took advantage of because we might not be able to do some of them anymore. That’s just on a personal level.
Rob: Oh, man. Now I’m bummed out.
Einar: Don’t listen to Craig.
Rob: Probably pretty realistic. What’s your take, Einar? You have thoughts?
Einar: Yeah, I have the same stuff. I remember him—seeing this—putting this thread out—I guess it’s two or three weeks ago now. I’m reading it and feelings of déjà vu and some of the feelings that I had particularly on the personal side. As you know, Rob, I was shouting about this stuff for a long time, and just saying that, “This is going to be a problem. This is going to be a problem. This is going to be a problem.”
Just one of the things you noted is the night that it became real in America, this is a combination of the NBA season being suspended, and Tom Hanks reporting that he was testing positive. It’s odd to me because I see that in his thread, and I was like, “Oh, yeah I remember that night.” Because I remember it with relief. It was like March 11. Everyone finally was like, “Wait, this is a real thing.”
Craig: You’re not crazy.
Einar: Exactly. I was like, “Wait, is this just a big conspiracy theory on Twitter? Am I spending too much time on Twitter again?” I don’t know. That was the main stuff, just the sort of personal like, “Oh, this turned out to be the last time I was in a restaurant. This turned out to be the last time I did XYZ for several months.” On the point of things won’t be the same, obviously, some restaurants in main street are going under.
Some of the downsides, for example, to the stimulus package on the small business side, which I actually made this mistake initially. I thought you could get a loan and a grant to cover, not only your payroll, but actually, also rent during that time. That turns out not to be the case. Friends of mine, they just bought a cafe three months ago—four months ago now, I guess. Their rent is probably their main single expense line. How are they going to cover that? I don’t know.
Rob: That doesn’t make a ton of sense to me. This thread, I felt the same way about it as I read through, and I remember this specifically. One of the nights I was up at the North Shore with one of my sons, and you and I were on the phone, and that was when the president declared a state of emergency at that point. He touches on that in here. It is starting to feel—well, I guess I have a couple of thoughts. One is you remember where you were when certain things happen, right? When 9/11 happened, you remember how you felt, and what house you were, and how you heard about it.
Hopefully, there are great things that happen that we remember where we were, but oftentimes, it feels like it’s the traditional one like my parents would bring up is like everyone remembers where they were when they heard Kennedy got shot, or Martin Luther King was shot. I don’t want it to always be the negative things, but it certainly does seem that way. That’s how this will feel.
I’m curious, going forward, I wonder how our kids will remember this? It depends on their age, obviously, and depends on personality, but it’s such a trippy thing for them to be in this. Again, using that unprecedented word, it’s unprecedented and hopefully doesn’t happen again in our lifetime. I feel like the first couple of weeks of the quarantining, I was incredibly unproductive. I was trying to get 5-10 hours of work done a week.
I would sit in front of my computer for 7-8 hours a day, but I just wasn’t getting that much work done. Then a bit flipped for me. It was somewhere in the third week—late in the third week, early in the fourth. Now, I feel like I’m extremely focused. I’m sad at the tragedy. I still get the newspaper, and I read the headlines every day. I just feel so bad for what’s going on, but I also hit the point where it’s like, “Okay, I can’t sit and wallow in these feelings all the time. I have stuff to do here that is hopefully helping other people, running my business, supporting my founders.”
Doing this podcast. People have been emailing saying, “Thanks for continuing to put it out,” because it helps them get through the week. It helps them have a bright spot in the day to hear about what’s going on, as well as the MicroConf On Air live streams, and just all the stuff that I’m doing. I feel like I’ve found almost like a renewed sense of purpose, and a renewed sense of motivation just in the past couple of weeks. Because you guys, I believe—I’ve lost count—but it’s at either fifth week or it might be the sixth week, I genuinely don’t know of quarantining.
I’m curious, Craig, how are you mentally in terms of being able to focus on work? I guess this relates to the question I had asked earlier, but I asked it more about your team and the company.
Craig: Similarly at the first, surely, week or two I was just sad. I’ve heard it being compared to mourning—losing a loved one. That you’re just sad, and then you’re angry, and then you accept it, and learn how to live with things. At this point, I’m good on a spiritual level. I’m productive at work, I feel really happy and blessed that my family is happy and healthy.
It really is business as usual for me. I’m actually working more now than I normally would because there’s nothing else to do. I’m working 25% more than I normally do. I feel really happy about that because I do have a responsibility to our team, and to our customers, and I’m glad that we’re able to continue serving them.
Rob: Einar, you had told me early on that you were super distracted like I was—and I think most of us were. Has that settled out for you, or do you still feel like the running dread of stress and news is taking you away from work more than you’d like?
Einar: It’s gotten much better this week. I feel like I was productive the previous two weeks before that too, but mostly in diving into the PPP programs. That is, honestly, requires a lot of outrage a fair amount of the time. Also, because my contact detail was on those pages on MicroConf around, “Just reach out if you have any questions.” I would get 3, 4, 5, 6, 7, 8 emails a day with—in some cases—pretty heartbreaking situations where people were asking for advice. That started to die down a little.
I’ve been able to get back to more of doing what I was planning to do this time of year, but certainly, just because of what my main job is going forward, which is sort of on hold. That’s the thing. We were supposed to be in the market right now going for aggressively fundraising for a fund two, and certainly, that side of things is pretty much unlike in a while. I don’t know when we’re going to do that again.
It’s been better, but certainly, I don’t have the same level of productivity look for what you guys seem to be saying now.
Craig: Could I add one thing?
Rob: Yeah, I know. Do it.
Craig: I don’t want to leave with a down in the doldrums really pessimistic view of this because one thing that’s really interesting here compared to the financial crisis is this was like an external event that drove everything into the dumps that it is now, right? All these people have lost their jobs, or furloughed, or whatever because of an external event. That external event will go away, and things will come back much more quickly out of this than they did the financial crisis. That was years, this could be months. Sometime around the end of the year maybe.
I think that folks that have been impacted, if we can survive—say until the end of the year—I think there are going to be huge opportunities. Talking about this trend towards remote work, and things like podcasting, webinars, and digital products, and things like that. Folks that listen to this podcast, I think all are rightfully thinking like, “Okay, as the world comes out of this, what does it look like, and how can I—as a smart nimble bootstrap scrappy person—position myself and our brands to be ready for that?”
We all are very uniquely ready to lead that charge. That’s maybe something that gives me a little optimism in folks for this community.
Rob: I appreciate that. I appreciate us leaving it on a positive note. I was going to say that I have tended to be the optimist in the room in this situation and in a lot of situations. Einar and I have been a good balancing because he was saying, “Oh, it’s going to get really bad,” and I was like, “I don’t think it’ll get that bad.” Turns out, he was right. When I look back at even just four episodes ago, Einar and I were on here talking about. I was like, “This is a tragedy. It’s devastating. Things will get better.”
We need to acknowledge what’s happening with the reality of the current situation, but we also need to acknowledge that it will get better. Everything’s not going to change permanently. To me, there is a bright future to look ahead to. I say that with all respect to the current frontline workers. We have multiple friends who are physicians, and they’re going through crazy. We have an ER doc. It’s terrible, and it’s very hard, and it’s very stressful for them. I want to fully acknowledge that, but also there is another side. There is the other side that we will get to within months, hopefully, but I guess we’ll see how that all pans out.
Gentlemen, let’s wrap on that positive note. Thanks so much for agreeing to come on the show and for working with me to find a time that works. Einar, you were a last-minute substitute, and I do appreciate that. I had a guest who unfortunately had to cancel. I’ll try to get her booked on a future episode.
Craig Hewitt, if folks want to keep up with you on Twitter, you are @TheCraigHewitt. Of course, castos.com is your podcast hosting service that this podcast and TinySeed Tales, and MicroConf On Air are all hosted on, so check that out if you haven’t already.
Einar Vollset, you are @einarvollset on Twitter and tinyseed.com, if you want to see what he’s up to. Actually, if they really want to see what you’re up to, we’ll link up your MicroConf COVID-19 business relief overview article that I know you spent dozens of hours putting together.
Einar: The most productive I’ve been in the last few weeks.
Rob: Exactly, the most output. Thanks again gents for coming on the show. Hope to have you back again soon.
Craig: Thanks, Rob.
Rob: Stay tuned next week to hear another update from Mike Taber on how things are going with Bluetick. He and I haven’t spoken, especially not on the show, but we literally haven’t spoken since all the self-quarantine stuff happens. I’ll be interested to hear how he’s thinking. Then I’m looking to do a Q&A episode probably the week after, so if you have a question for me or for a guest that I decided to bring on, please, leave me a voicemail at 1-888-801-9690 or email firstname.lastname@example.org.
If you send a Dropbox link to an audio file, that will go to the top of the queue. If you enter text, it will be in the queue of current questions we have. If you’re not subscribed to the show, you should search for startups in any podcatcher that you have. Of course, we have a full transcript of each episode on the website—typically within a few days after the episode is published. Thanks so much for listening this week. I’ll see you next time.
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.