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Managing risks and preparing for a rebound

Bill.com CEO and Domo CFO share lessons from the last recession and discuss how those experiences are shaping their decisions now

Rarely have startups faced as great a challenge as they do today. The current COVID-19 pandemic has impacted almost every facet of our daily lives. However, unlike other economic downturns, this one is tied to a global health crisis, creating additional uncertainty and layers of challenges for companies of all sizes.

At Emergence, our experience ranges from early Series A startups to large public companies. Since many early-stage founders have only operated in a bull market, we asked two seasoned executives to discuss their journeys leading companies through the last recession and to share how the lessons they learned are informing their decision-making processes during the current crisis.

René Lacerte is the Founder & CEO of Bill.com (BILL). He founded the company in 2006 and received a round of significant funding in late 2007, right before the financial crisis hit. His long-term strategy and approach to leadership allowed Bill.com to weather that storm. Now, 14 years later, Bill.com is a $5B company that has transformed how businesses pay and get paid.

Bruce Felt served as CFO of SuccessFactors from 2006 to 2012. During that time, he led the company through a successful IPO, six acquisitions, and a $3.4B sale to SAP. For the past six years, Bruce has served as CFO to Domo (DOMO), a cloud-based business intelligence and analytics platform, leading the company through its IPO in 2018. Currently, Bruce is helping Domo navigate the pandemic by making strategic financial decisions and setting it up for long-term success.

Collectively, these two seasoned executives possess decades of experience transforming early-stage startups into publicly traded global companies. Both execs have had to make tough decisions during the pandemic—just as they did during the ‘08 downturn. In a recent event, we asked them to divulge their hard-won best practices for navigating recessions and their insights and recommendations to founders and tech executives operating businesses and managing risks during this period of uncertainty.

We captured their top-line takeaways below.

1. Lead with vulnerability, transparency — and culture.

René believes in the importance of strong leadership during any crisis. “For me, it always goes back to being vulnerable and transparent. I think it’s important to treat your employees with respect and bring them into the decision process.” Part of being vulnerable is acknowledging that no one knows everything, and that is okay. Transparent, open communications build trust among employees and help them feel confident that tough decisions are being made carefully and with an appreciation for the gravity of the consequences.  

To increase transparency during this period during which employees are working remotely, René recommends hosting a Town Hall every other week with a format where anyone can ask questions. “During the first month of shelter-in-place, we met company-wide every week. Now, we meet every other week as a Town Hall. It’s a Q&A so people can ask about whatever’s on their mind. Everybody's worried. Just acknowledging that anxiety seems to help.” 

To boost morale and maintain a positive company culture, even as employees work remotely, René is building new protocols for acknowledging great work. “We get the full list of submissions each day, and then I select who gets recognized. We send out local baked goods and a $50 DoorDash gift card. People look forward to it, and it helps people feel valued across the entire company.”

2. Hope for a V, plan for a U.

The human tendency is to not act fast enough and to expect whatever crisis we are facing to end sooner than it actually will. Right now, during COVID-19, no one knows how long this downturn will last, what industries may end up being hit harder than expected, and what the recovery will entail. While everyone hopes for a fast V recovery, Bruce recommends that company leaders brace for a slower-paced recovery. “The sooner you make tough decisions, the longer the runway you’ll have to survive a potentially slow recovery.”

Getting into the specifics of budgetary planning, Bruce suggests companies should consider an “80/80 Plan.” For Domo, this meant adjusting plans to hit 80% of projected new business and 80% of renewal rates. Then that new top-line billings number can be plugged into costs to determine a new cash flow target. This informs decision-makers how many expenses they need to cut now. He also recommends having a secondary plan that outlines what could be cut down the road if the pandemic lasts longer than projected. 

3. Know your triggers and assess status daily.

Your risk factor really depends on your market segment, but everyone should be analyzing their customers’ level of exposure to the recession. Evaluate, constantly reevaluate, and adjust accordingly.

René says Bill.com is looking at their data with increased frequency. They built a matrix to help strategize for the various potential scenarios that could play out dependent on the rapidly evolving business conditions, and they met daily to discuss where they fell and what to plan for. René says it is of absolute importance that executive teams wholly understand their company’s triggers in either direction so that they are prepared to quickly course-correct as needed. 

4. Be strategic and swift on managing costs.

René’s philosophy has always been to understand his headcount, and when it comes to having to make cuts he says, “If reducing your workforce does not equal return on investment, don’t do it.” René also warns founders not to over simplify, “I’ve seen too many young companies adopt the mindset of 'Let's just not spend so that we can get cash flow-positive.’” He warns that this rarely works in their favor.

As a veteran CFO, Bruce recommended that companies cut costs strategically, keeping an eye on whatever core metrics, such as profitability or burn, matter most for their business. “Back at SuccessFactors during the financial crisis, we decided to drive towards being cash flow-break even,” he explained. “The management team took pay cuts, and we asked the board to cut their fee.” Bruce warns about pay cuts saying, “Pay cuts across the board should be a last resort. If you cut everybody's pay, you're going to put everybody up on the job market. You'll lose your best players.” 

During the last recession, SuccessFactors also made the painful decision to reduce the size of its workforce. It wasn't easy. Bruce said that the executive team went with the directive of “last in, first out” across the sales team because they had significantly increased the size of their sales force, only to experience a sudden drop in  demand. As a result of these hard but necessary decisions, SuccessFactors emerged in the black almost overnight.

Bruce also notes that many companies, even those with services still in demand during a recession, should plan for sales cycles to lengthen and/or transaction sizes to decrease. He recommended cutting expenses accordingly so companies have enough cash to get through the crisis and can keep burn, profitability or other core metrics at the levels that investors are expecting. 

When it comes to balancing short-term cost-cutting against the long-term investments needed for growth, René recommended starting by determining how much you can realistically expect to grow. For example, he says that if you’re not sure that by doubling the sales force that you can get the necessary return on investment, then you probably shouldn’t do it.

Bruce notes that job cuts, when made strategically, should not lead to productivity loss. In fact, it can have the opposite effect. At SuccessFactors, “Our absolute performance went up dramatically—not relative performance—absolute performance.”

René had a similar anecdote. “When Bill.com made cuts during the last recession, we never considered changing our roadmap. We just executed with less people. Keep your stars, and they’ll deliver.” 

5. Never forget the human side.

During the financial crisis, René brought everybody in the company into the room to explain the economic data and let them ask questions. Once people understood the decisions he was facing, he revealed that he was going to have to make some decisions to keep the company going, and they weren’t going to be great for everyone in the room. After that, managers broke off and spoke to each employee one by one.

René believes it’s important for leaders to convey the context of decisions and their own personal responses to them. He says, "Don't forget the human side. Expressing humanity and showcasing empathy is not only important for the employees who are leaving; it’s also critical for maintaining the morale and engagement of the team that remains. It also leaves room to hire people back.” Handling layoffs with empathy also means that past and current employees are more likely to act as positive brand ambassadors. 

6. Be ready for the rebound.

Both executives recommend using this time to prepare for an eventual recovery. René says Bill.com is assessing performance across the company. He says, “It’s during times of crisis that you see people step up. If they do, give them more. If they can't, bring in somebody who will.”

Bruce agrees, “Even though it’s a scary macro environment, there will be attrition. It’s important to plan for it and rebalance within the current cost structure.” This isn’t only an opportunity to find new leaders; it’s also an opportunity to attract a different profile of professionals with expertise in the vertical sectors that are well-positioned during this downturn and who possess the skills to meet the needs of the current environment. 

Staying within a cost envelope but accruing more firepower is key to being prepared to spring back into full growth mode as soon as the recovery begins. It’s a win-win.

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