Sh*t, It’s Windy.
Our guide to weathering the economic storm of the century.
Dear Founders and the Australian Start-up Community
It is time to have an honest chat — blind optimism can’t protect us from the dark reality that we are facing the economic storm of the century; and we haven’t seen the eye of the storm just yet.
This isn’t 1929 or 2008, its 2020 and the Covid-19 crisis has resulted in a never seen before economic shutdown — astonishing not only for its size but for how quickly it is moving. We are seeing iconic brands shutting up shop, global markets dive and food staples being restricted.
Let’s face it, social distancing has resulted in economic distancing, and we are finding ourselves in uncharted territory. Metaphorically speaking, this is an economic storm that has blindsided us all and as Scott Morrison (ScoMo) has described it ‘things are going to get worse before they get better’.
But rest assured, every storm does run out of rain. Remember, out of the 2009 financial crisis, came some of the preeminent start-ups of our time like Uber, AirBnb, Square, Slack and Dropbox.
With the right mindset, crisis can be a catalyst for innovation — and if you can weather this storm and learn how to be adaptive — you’ll slingshot through to the other side, stronger than before.
If you’re going to ride this out with us, we’ve got a few tips for you.
CHECK YOUR FOUNDATIONS & BATTEN DOWN THE HATCHES
Like any storm, we can’t know the full extent of the damage it’ll cause until it’s over. Similarly, it’s difficult to predict the depths of this economic crisis. To put yourself in the best position to weather what’s coming, it’s crucial to check your foundations and prepare to batten down the hatches.
Don’t read the tea leaves at the bottom of your cup looking for answers. To have a seriously good understanding of every aspect of your business, start by taking stock of your financial and legal position. The top questions to ask yourself are:
1. What is the current financial state of my business? (i.e. How have the last few weeks impacted your revenue / leads? How likely is it that your current debtors will pay you? What are your current inventory levels and when will you need to restock?).
2. What does my runway look like for the next 12 to 18 months? — Experts are predicting that the economic impact of this pandemic could last 12 to 18 months — so be sure to plan for the long term.
3. What are my ‘need to have’ expenses vs. my ‘nice to have’ expenses? For example, at LUNA we had to make the tough decision to cut non-essential contractors, marketing and our annual retreat. The decisions you’re faced with are tough but are necessary to get you through.
4. What legal agreements (or commitments) do I have in place? — No one ever said “I love reading terms and conditions” (except for maybe the lawyers at LUNA). Making sure you’re across all of your agreements and obligations will prove helpful if you need to negotiate new terms.
Once you are clear on your current legal and financial position, it’s time to:
PLAN FOR VARYING SCENARIOS
The only certainty we have is uncertainty, so it’s critical that you have different plans for different futures. Some of the top thinkers in the VC area (such as OneVentures, Blackbird and Airtree) suggest scenario-planning for up to 24-months from now. At LUNA, we’ve created strategies around four specific revenue-drop scenarios — with individual plans for 20%, 40%, 60% and 80% revenue losses respectively.
MONITOR THE STORM AND STAY INFORMED
Knowledge is power, and staying informed helps you monitor the storm and get the support you need. If you don’t stay up-to-date, you’ll miss vital government and sector announcements (and also miss ScoMo admit that he has no idea what Barre is).
Key announcements to date with a direct impact on start-ups include:
the Federal Government announcing two stimulus packages worth a whopping $189 billion (to put that into perspective, that’s 9.7% of Australia’s GDP), and the government has already flagged a third-package.
the Australian Tax Office is administering new measures to support businesses with the provision of tax-free cash flow boosts of between $10,000 and $50,000, as well as deferring tax and activity statements.
State Governments announced their own economic survival and stimulus packages (see here for each state, Victoria, New South Wales, Queensland and Western Australia).
the Australian Trade Commission announced that the R&D Tax Incentive deadline for the 2018–19 financial year will be extended to 30 September 2020 (which was previously 30 April 2020).
the banking sector is (for the first time in history) lowering interest rates and offering payment deferrals for business loans (e.g. Commbank is deferring payment on business loans and NAB is offering temporary increases in overdraft facilities for 12 months).
Look, there’s a lot happening and a s**t load of complex information to get your head around. To make it easier to decipher, LUNA’s built this guide to all startup relevant stimulus packages to date (we recommend that you bookmark this link as we’ll be adding to it as new packages are announced).
BEING AGILE IS YOUR BEST PROTECTION
If you ever studied Charles Darwin’s theory on human evolution in high school, you would have learnt that it’s not the strongest species that survive; it’s the ones who are the most adaptable to change. Likewise, start-ups who are agile during this time will have the best possible chance to power through — but you need to survive in order to thrive.
Being agile doesn’t just mean learning to navigate work-from-home avatars or facilitate multi-person meetings on Zoom. It means redefining how you and your business have worked in the past.
Move quickly, but don’t be too hasty — from what we’ve, startups are already adapting to change (maker spaces are leveling-up to manufacture and distribute 3D-printed medical supplies, Swoop Aero, an Australian drone company is delivering crucial supplies to fight the coronavirus in southwestern Africa, and the City of Melbourne is offering small to medium businesses a range of grants to invest in online and ecommerce capabilities). Changing the way you conduct your business might be the life-line that gets you through to the other side. But don’t make decisions without considering the long-term implications.
Have a clear communication strategy — don’t assume that your customers and employees know what’s happening with your business. It’s a good idea to reassure everyone that you have a plan in place to get you through this (for example UberEats announced they would continue delivery but would leave the food at people’s doors as opposed to handing it to them).
Change the way you lead: A distinctive feature of enduring companies is the way their leaders react in moments like this. You don’t need to have a predefined response in place right now. Instead, recognise that you need to change your behaviours and mindset to prevent overreacting and to shift your focus to a future of opportunities. Most importantly, don’t forget to use emotional intelligence.
This isn’t business as usual, so you need to be adaptable when considering how you think about the long-term future. The stark reality is that it’s going to take several quarters before the Australian, and global economy recovers (Remember, we’re looking at 24-months here).
THERE IS AN END TO EVERY STORM
Remember, the rain will stop and when it does you’ll be ready for acceleration at a pace you’ve spent months preparing for, let these key tips be the first steps in your preparation.
Check your foundations — know your business inside-out and over again.
Monitor the storm — follow LUNA’s financial stimulus guide to stay on top of developments (there are many more to come).
Agility is the best protection — making quick decisions and adapting to the changing world around you will be your best bet. But don’t be hasty — make decisions that will have the best possible outcome for your business now and in the future.
And look, if Tom Hanks can survive a World War, a desert island, a failed moon landing, a ship hijacking AND coronavirus, we can at least make it through one of them .
We’re right there with you.
Elbow bumps
The LUNA Team
