Mistakes in a Crisis
As business leaders across the globe deal with the personal and economic fallout of COVID-19, many young entrepreneurs are facing the first true test of their careers. Startups that were on strong growth trajectories just two months ago now have one mission: survival.
The decisions leaders make in crisis situations can make or break an early stage company. To help young entrepreneurs avoid severe missteps during the difficult decisions COVID-19 requires, I’ve outlined the four biggest mistakes many new leaders make during times of crisis and the actions they should take instead.
Mistake 1: Acting With Blind Optimism
Entrepreneurs are famous for their optimism; it’s practically a prerequisite for the gig. While confidence and hopefulness are essential when building something new, optimism is a double-edged sword and can quickly become a dangerous weakness in a crisis situation.
Shifting to a pessimistic mindset will feel unnatural to many entrepreneurs, but it’s necessary. The current financial reality is grim, particularly for early stage startups just getting their footing. Two-thirds of tech startups don’t have the capital to survive past September, according to Startup Genome data. Worse still, 10% don’t have enough cash to survive just a few weeks of the downturn. The quicker founders can come to terms with the gravity of the situation and the very real possibility that their businesses could fail, the stronger leaders and decision makers they become.
As the data illustrates, liquidity is the No. 1 challenge companies of all sizes need to contend with right now. Effectively combating cash shortages comes down to anticipating and planning for the absolute worst-case scenario. Once a worst-case scenario is established, leaders must act quickly and decisively to reduce costs and manage cash flow accordingly.
Mistake 2: Resisting Change And New Opportunities
Many businesses will not survive COVID-19, and many others will need to significantly adapt their business models to stay afloat. It’s terrifying for any leader to look at their business and realize it’s no longer sustainable. The most crippling mistake they could make in that moment is resisting change and turning a blind eye to new ideas.
I’d encourage founders to remember that they started their businesses by going against the grain, challenging the status quo and bucking convention. Entrepreneurs are uniquely adaptable and are best equipped to pivot when times get tough. Creative thinking and a disruptive mentality are their best assets right now.
A recent New York Times article spotlighted small business owners who have channeled that creative problem solving and altered their businesses to remain viable in the world’s new normal. For instance, a tiny-home manufacturer has repositioned his product and marketed it as a home office space for the cohort of Americans now working remotely. A laundry service startup for Airbnb hosts changed course to offer its services to elderly customers unable to leave their homes.
These examples lend valuable lessons to founders trying to think outside the box. Consider targeting a new customer base, adapting the physical product and delivery, and tweaking a service or product to address a new community or societal need.
Mistake 3: Not Effectively Communicating With Their Internal Team Or Being Transparent
No one likes delivering tough news, but real leadership means communicating with your partners and your team through the good times and the bad. People are scared and feeling uncertain about their job security. It’s essential for leaders to be honest about the challenges the company is facing, even if they don’t have all the answers.
At the end of the day, entrepreneurs will have to do what is right for their businesses, and that means making difficult decisions and having tough conversations. Leaders who operate with compassion and transparency during a crisis, even while making the difficult decisions, will engender greater loyalty and trust with the employees who stay on as part of the team throughout this pandemic.
Mistake 4: Withdrawing From Their Personal And Professional Support Networks
During difficult moments, a lot of entrepreneurs will make the mistake of isolating themselves from their personal and professional networks. It’s a lot easier to connect with people when times are good and business is booming. It can be tremendously challenging to reach out and ask for help or advice when challenges arise. As daunting as it may seem, crises are precisely when leaders need their support networks the most.
My advice to young entrepreneurs is this: If you don’t have an advisory board already, build one today. If you don’t have a mentor, look for one. Reach out to someone who has built a business you admire, and ask if they’d be open to mentoring you.
This advice is even more important for young entrepreneurs who have never encountered a bear market before. Gaining the support, guidance and perspective from someone who has gone through an economic downturn before can make all the difference.
Keep Moving Forward
While the road ahead will be difficult, it is still possible to emerge stronger out of a crisis by acting quickly and strategically. The current economic reality will be the most challenging moment in many leaders’ careers, but it will also create opportunities for new solutions and companies to emerge. For inspiration, look to the long list of startups that were formed during the last recession, and pick up the phone to problem solve with a trusted mentor.
Written by Gregor Watson
Gregor is the co-founder and chairman of Roofstock, an online marketplace for buying and selling single-family rental properties.