By: Sodan Selva & Sid Mofya
“It is not the strongest of the species that survives, nor the most intelligent; it is the one most adaptable to change.” — Charles Darwin
We are living in unprecedented times dealing with a global Coronavirus (COVID-19) pandemic and a market correction that could lead to a recession. The way we respond to this crisis will in many ways shape our collective future and determine the magnitude of the collateral damage to the economy and human lives. During these times, businesses will be called to level-up like never before in our recent history. Downturns, especially during a period of accelerating disruption, present greater opportunities for established companies to reinvent for the future while surviving the current state. This memo outlines a plan for business leaders to not only survive the current recession but also mitigate the risk of irrelevance in the face of multifaceted disruptions. This requires both an offensive and defensive strategy to be crafted, integrated and executed from within.
Where are we now?
We’ve been riding a “good times” economy for about a decade and the tides have turned as a result of the Coronavirus (COVID-19) pandemic. This is the third downturn in the 21st century: 2001, 2008 and now 2020. However, this downturn is also showing that future disruptions will not be caused solely by technological or climate change, but by previously unanticipated threats. The 2020s will be a decade of accelerating disruptions, leading to even greater volatility. The real opportunity underlying all of this is that downturns during a period of accelerating disruption present greater opportunities for established companies to reinvent for the future while surviving the current state.
Most business leaders understand the wisdom of operating with constrained resources during these times. On March 5, 2020, venture capital firm Sequoia Capital (the same firm that wrote “R.I.P. Good Times” in October 2008, the dawn of the last down cycle) released a memo to the Founders and CEOs of its portfolio firms titled “CoronaVirus: The Black Swan of 2020.” This memo spoke to the realities and adjustments that their companies should consider during a downturn. The pragmatic takeaways for their portfolio companies are the following: pay close attention to cash runway, prepare for fundraising challenges, refine your sales forecasts, watch the ROI on marketing, optimize headcount, re-examine capital spending.
However, for established companies, this reality demands that leaders move beyond the one-dimensional playbook of operating in extreme capital-efficiency. They need to run a parallel track that nurtures growth-offensive lines of business which mitigate the risks posed by today’s accelerating disruptions. A downturn can provide a unique opportunity to invest in growth at a steep discount to more “normal” times. Ultimately, this can enable a company to truly “escape the competition” by operating simultaneously capital-light and innovation-heavy.
To effectively capitalize on this opportunity, when it comes to innovation and transformation, leaders need to ensure not to “throw the baby out with the bathwater.” While refining costs in these areas, it would also be smart to seed growth-lines of business that are wired with the discipline of capital-efficient operating. Remember that iconic and innovative companies like Disney (1923), Microsoft (1975) and Apple (2001) were started or resurrected during a recession.
The Focus During Turbulent Times
Please consider the following to refine and mitigate risk around your Innovation and Transformation initiatives while in parallel creating a track for growth businesses that have the potential to reinvent your company for the future.
Strategic Connectivity: Whether it is with the core business, corporate innovation or digital transformation, there needs to be some clear connectivity back to the power of your company. If there is misalignment with your innovation, transformation or corporate venture capital initiatives, now is the time for a serious re-examination.
Results Focussed: Corporate innovation and digital transformation needs to either show current results or a path to tangible results within specified time horizons. This is a great time to reconsider “bleeding edge” technologies that your company adopted based on future promises that have yet to be realized. It will be wise to be clinical and stoic in this analysis and decision-making process.
Empower within, minimize dependencies: Many companies have relied on outsourcing their future capabilities or leaning in on experts, management consultants, and outsourced venture capital services to navigate the unknowns that come with accelerated disruption. Now is the time to closely examine these providers for effectiveness, impact and cost-efficiency and develop a more “coordinated approach” – where the internal operators and teams are empowered and equipped to take the lead. In parallel, it is time to take some portion of those savings and invest more, not less, into rewiring your leaders and employees to effectively navigate the unknown and create new directions as part of their core DNA. Companies that do this effectively retrain their operating leaders and employees to craft and execute their strategic new directions through deeper customer interactions. They also become adept at fundamentally new ways of working that lead to this future state. Those companies that do this will find themselves far ahead of the competition and leading the 2020s.
Capital Light Defense: Many companies have been able to spend boldly in the past decade with the strategic objective to “transform”. For what’s coming, CEOs – in close partnership with their CFOs and Heads of Innovation – will need to adjust to starting “capital light” and only invest further as transformation and innovation initiatives prove themselves out with tangible results. This will require more discipline than what may have been required during the “good times,” but it’s a great opportunity to rewire habits and behaviors to be anchored in shorter-term results, while in parallel carefully building long-term future value.
A Black Swan Offensive: Playing all defense via cost-cutting during down cycles may seem prudent in the near term. However, this significantly increases the risk of longer-term irrelevance, or bankruptcy, in an environment of multifaceted, accelerating disruption. The “follow the herd” game that many companies have had the luxury to play during good times will need to be put to rest. Companies need to re-engineer the ways they have traditionally operated and innovated in order to tap into “Black Swan” opportunities: previously invisible or seemingly unviable big-time moves which significantly change a business as we know it. When Disney went from animation into theme parks, or Apple moved from computers to a consumer electronic powered entertainment ecosystem, the business landscape as we knew it in those respective industries changed forever. These opportunities can’t be readily identified through trends and research but have the potential to create business ventures that catch its competitors by surprise and shake its industry to the core. Our data shows that it also significantly enhances future free cash flows.
Our Integrated Approach
In order to empower companies to not only make it through the difficult times ahead but also lead in the future, we want to present a path forward that integrates defensive AND offensive strategies, utilizing both the principles of capital efficiency and operator-crafted transformation. The Draper Venture Network’s Gold Star program utilizes the power of its global network of innovators and investors to help business leaders develop an integrative approach towards Transformation and Innovation. Similarly, the Movement Maker program empowers the operators within a company to move into Black Swan opportunities and catalyze movements that rewire established businesses for a future state. We feel that a truly integrated solution is necessary to reset and prepare business leaders for this next phase.
This memo is the first of four that delve into executing capital light, operator-led transformations. These programs are based on our work and research with hundreds of corporations over the past several decades.
The time has come to redefine the “down cycle” fundamentals with a Black Swan Offensive playbook. As Steve Jobs said twenty years ago when Apple was struggling to find its footing after the dot-com crash:
“A lot of companies have chosen to (only) downsize, and maybe that was the right thing for them. We chose a different path.”
Sodan Selva is the Founder of Movementmaker.io and Managing Partner at Chia Ventures, Inc., based in Silicon Valley, which was founded in 2014 with the mission to crack the code on how established companies could successfully transform, innovate and repeatedly grow today, realizing classical wisdom of the 20th century could not keep up. After three years of R&D, testing, piloting, iterating with C-level transformationalists and learning from select cross-disciplinary Stanford University researchers, the Movement Maker program was launched. Sodan grew as an executive and operator, as the primary catalyst alongside C-suite leaders in the pursuit of innovation and transformation at public (Disney), private equity (Blackstone) and venture capital funded (USA, Europe) companies for over 25+ years. He works with business leaders at Fortune 500 and Fortune 1000 companies globally.
Sid Mofya is the Chief Operating Officer of the Draper Venture Network, where he oversees strategic partnerships between Fortune 500 companies and their 1000-strong portfolio of technology startups. The Draper Venture Network, started by Tim Draper in 1990, consists of 25 venture capital firms around the world that invest in leading early stage technology companies. Collectively, they are currently deploying $2 billion in assets and have a presence in over 60 cities globally. Sid’s experience prior to the Draper Venture Network, includes running strategic innovation programs in Europe and Africa at Shell, the UK Ministry of Justice and the Henry M Jackson Foundation. He has an MBA in Entrepreneurship from the Acton School of Business and a Bachelor in Chemical Process Engineering from the University of Sheffield.