The world economy is in a "crucible moment"--and businesses need to adapt for more change to come.
That's according to a leaked, 52-page memo that the venture capital firm Sequoia Capital presented to its portfolio companies on May 16, The Information first reported. In the presentation--titled "Adapting to Endure"--the VC firm explains that it's not yet time to panic, but businesses should think critically about how they can prepare for a economic downturn. Planning for the worst will help companies "avoid the death spiral."
This isn't the first time that a Sequoia Capital memo predicted economic hardship. In 2008, its R.I.P. Good Times memo foretold the Great Recession, and in early March 2020, its Black Swan letter told businesses what to anticipate at the outset of the Covid-19 pandemic. Now, it's worth paying attention to Sequoia's predictions for months ahead.
Here are the three biggest pieces of advice to take away from the latest presentation.
1. Simplify your strategy.
Now is not the time for rapid growth--it's time for deliberate scaling and cost-cutting. The only strategies businesses should focus on in the current moment are those that drive revenue growth, save money (for a strong return on investment), and reduce risk, the memo says. Companies should look at cuts as a way of conserving cash and making business more efficient.
2. Find opportunity.
"We believe the best, most ambitious, most determined of you will use this moment to rise to the occasion and build something truly remarkable," reads Sequoia's memo. Businesses will need to make hard choices to stay solvent, but those choices can position them for success even after economic recovery.
This echoes the sentiments of Jorge A. Guzman, associate professor of business management at Columbia Business School, who recently told Inc. that recessions can bring unexpected business opportunities, like the chance for a successful company to acquire one that may not be faring as well.
3. Lead with optimism and realism.
Strong leadership is essential for companies even on the best days--but it's even more vital when times are tough. Sequoia advises leading with the "four C's": communication, conviction, confidence, and calmness. Leaders should also make sure that their teams are aligned on goals and overall vision; employees will be looking to their managers for direction and reassurance, so it's necessary for those in charge to rise to the challenge.