Just shy of two years ago, Capria partners sounded the alarm bell loudly – declaring that only the decisive will survive – in response to the growing pandemic. Investors and CEOs around the globe worked together to cut costs, find new sources of revenue, get bridge rounds done, etc. As a result of your hard work and leadership, your businesses have made it through the toughest of times.
Now we all read with horror every few hours about Ukraine. We, along with the vast majority of the world, are keen to see peace. But if there is one thing that has remained true over the past few years it’s that we live in unprecedentedly-uncertain times. As such, as the saying goes, we must prepare for the worst while maintaining hope for the best.
The war in Europe adds a third headwind to two existing challenges: the pandemic that will not go away and is slowly transitioning to an erratic and evolving endemic threat, and US inflation kicking into the highest levels since 1982 and highly likely to continue spiraling upwards due to war-induced increases in energy and other natural resources prices. Headwinds from three directions is a dramatic understatement of what we all face over the next few years. Leading to my core question: what should you as a CEO do, starting TODAY?
Before I get into the recommendations we are making to our CEO network, it’s important to note that historically, market reaction to war has been “mehh”. A financial advisor from a multinational firm sent me a chart last week showing the S&P 500’s rise over the last 75 years, annotated with war events. Remarkably, there is little correlation or sustained impact. That said, this time may be different, given we have a trifecta of headwinds that include a potentially more destructive war than anyone expects.
Advice to CEOs
Capria is making the following high level recommendations to our CEOs:
1. Move to a more defensive cash management posture. It’s time to ensure you have 12-18 months of cash in the bank based on current conservative revenue plans. If not, you need to take a pause on growing expenses for the next 60-90 days until you can get a better view of how the global macro factors will impact your business. That means delaying launch of major (or expensive) new initiatives, freezing hiring for all but the most essential positions, and reducing marketing spend wherever possible.
2. Finish current fundraising activities ASAP. It’s time to get MORE cash in the bank. If it costs a little more or you can’t get a few terms you wanted, so be it. Get the deal done. If you’re not currently fundraising, consider discussing an inside bridge with your investors. You can and will be going back to the market for bigger rounds later; you will be in a stronger and lower-risk position once you demonstrate your ability to navigate through the macro challenges.
3. Plan for how to get to profitability. Work with your senior leadership team to develop a high level plan for what you would do if you needed to be profitable, or with low enough burn to survive 24 months. This plan needs to assume somewhat lower growth also. With inflation spiking, consumers likely slow down discretionary expenses, as increased costs will be felt in their wallets near term. You should build your get-to-profitability plan over the next 1-2 weeks, and know how you’d be sustainable within 45-90 days of when you put it in motion (knowing that unwinding things responsibly takes time, as do planning and executing staff reductions if required).
4. Evaluate customer / investor liquidity risks. The financial sanctions being imposed on Russia (and indirectly, anyone who does business with Russians) are unprecedented. You need to review if you have any customer or investor exposure not only to Russia, but also to countries or entities that may end up impacted due to their ties to, or relationships with, Russia. This likely is a non-issue for most CEOs in the Global South, but it’s worth double-checking.
Once you’ve made the changes to move to a defensive posture, secured funds, and built the plans you need in case things deteriorate, get your team back to work. Despite the serious macro risks and headwinds new and old, the world will continue turning and consumers will continue consuming.