Menlo Park, California-based venture capital firm Sequoia Capital published a note last week advising founders to conserve cash and prepare for a difficult or impossible fundraising environment. Calling coronavirus the "black swan of 2020," the gist of their letter was that we are likely headed into a recession and the companies that survive will be the ones that drastically reduce spend now to extend their runway.
Reading the letter, you might assume that the "bold action" Sequoia is calling for would require you to lay off employees or cut marketing spend. The good news is that there are less disruptive ways to substantially reduce expenses. Here are four creative ways to weather a recession without hurting your business's growth or revenue potential.
Stop Hiring to Fill Open Positions
One of the easiest ways to conserve cash is to stop hiring to fill open positions. Instead, look to your current employees to see who can take on this new scope and deprioritize existing responsibilities that are not as impactful. Point employees to resources and training if the new work is outside their comfort zone.
Smart, motivated people can learn at a quick pace. For roles that require very specialized training or expertise, you can always contract out that work and pay only for what you need.
Equity, Not Cash
Now is also a great time to get smart about compensation. If cash is tight, you still have another valuable currency at your disposal that can be used as payment. Don't be afraid to use equity as a form of compensation, especially if you are forgoing fundraising.
The amount of equity you'd spend compensating consultants or employees would be far less than the equity you'd give up to venture capitalists if you raised another round of funding. If this helps stretch your runway so you don't need to raise, use it.
Go Halfsies on Rent
If you're not hiring as much as you thought, there is an opportunity to reduce your rent expense, which can be more than $10,000 per employee per year in startup hubs like San Francisco and New York. You can sublease some of your office space to another team to recoup some costs.
Don't have unused space? Maybe some of your employees would prefer to work remotely. It could be a win-win in terms of increasing productivity and opening up space.
Negotiate Your Expenses
Sit down and do the work of looking through every expense. You may find a few that just aren't relevant anymore. But, more important, you may be surprised at how much you can negotiate.
If you run an internet business, hosting and software services are likely a sizable expense you can make a dent in just by asking. Services run by big tech companies like Amazon, Google, and Microsoft are flush with cash and willing to give credits to win over your long-term loyalty.
You can also barter with the assets you do have, including your product, your audience of users, and even your own time and talents.
If Sequoia Capital is right that budget cuts are the prudent thing to do, try freezing hiring, using equity instead of cash, subleasing office space, and negotiating discounts. If Sequoia Capital is wrong and the economy stabilizes, you've just saved yourself some money without doing long-term damage to your business's growth.