A founder’s guide to crisis management | Uri Levine (Waze co-founder, serial entrepreneur)
Uri Levine, co-founder of Waze, discusses managing existential crises in startups. He outlines two main types: cash crises and loss of product market fit, emphasizing fast decision-making, transparency, and founders' ultimate responsibility to navigate these inevitable challenges.
Deep Dive Analysis
18 Topic Outline
Introduction to Crisis Management for Founders
Why a New Chapter on Crisis Management was Added
Two Abstract Types of Crises: Cash and Product-Market Fit
Case Study: Order Chat and Losing Product-Market Fit Due to COVID
The Importance of Founder Responsibility in Crisis
Case Study: Waze's Near-Death Experience with Google Maps Launch
Navigating a Cash Crisis: Assessment and Action
Case Study: WeSki's Survival Through a COVID Cash Crisis
The Founder's Role: Never Give Up and Make Decisions with Conviction
Keeping Your Team Engaged and Motivated During a Crisis
Transparency in Crisis Communication with the Team
Acting Fast in a Crisis to Preserve Options
Alternatives to Layoffs for Cost Reduction
Navigating a Product-Market Fit Crisis: Pivot or Shut Down
Case Study: Pontera's Multiple Pivots and Near-Death Experiences
Framework for Deciding to Pivot and Re-validating Value
The Power of 'If I Were to Start Today' Mindset
Avoiding Crises: The Role of Funding and Preparation
5 Key Concepts
Cash Crisis
A situation where a startup's cash plan is jeopardized due to factors like losing a major customer, an investor disappearing, or not meeting revenue expectations. It requires rapid adaptation to extend run rate and maintain operations.
Product-Market Fit Crisis
Occurs when a company's existing value proposition becomes irrelevant, often due to regulation changes, new competition, or market shifts. This necessitates going back to square one, re-evaluating the core offering, and potentially pivoting or shutting down.
Pay to Play
A financing strategy, often used in a crisis, where existing investors are required to participate in a new funding round to avoid severe dilution of their ownership. It can effectively force new investment at the expense of non-participating existing investors.
Luck (Uri's Definition)
Defined as 'opportunity meets readiness.' While opportunity may not always be controllable, readiness is entirely up to the individual or company, emphasizing preparation and proactivity.
Founder Responsibility
The belief that regardless of external circumstances like global crises or market shifts, the founder is ultimately responsible for the company's success or failure. This mindset empowers founders to control their destiny and make necessary decisions.
6 Questions Answered
Founders face two abstract types of crises: a cash crisis, where funding or revenue plans are jeopardized, and a product-market fit crisis, where the existing product or value proposition becomes irrelevant.
Acting fast is critical because delaying decisions, especially regarding burn rate reduction, leads to a loss of options. The longer a founder waits, the less leverage they have to extend runway or adapt, making recovery increasingly difficult.
Founders should prioritize transparency, openly sharing the challenges and the plan to address them, without sugarcoating. Demonstrating leadership and generosity, such as offering more equity or management taking salary cuts, can dramatically increase loyalty and commitment.
When product-market fit disappears, a founder should consider pivoting if they have the energy, a strong new thesis, and existing assets like technology, team, or know-how that provide a significant advantage for the new direction. If these elements are lacking, shutting down might be the better option.
Founders cannot avoid crises, as they are an inherent part of the startup journey. The best preparation is to maintain plenty of cash in the bank, as this provides more options and time to analyze and act fast when a crisis inevitably arises.
Alternatives include reducing salaries across the board for everyone (e.g., 30% reduction), or having management give up their salaries entirely. These options can maintain team commitment if the organization feels a collective responsibility.
27 Actionable Insights
1. Assume Full Responsibility
Assume full responsibility for your company’s success, as this mindset allows you to control your own destiny and increases the likelihood of success, regardless of external market conditions.
2. Never Give Up
Always keep on looking for ways to make it work, even during a journey of failures, as this is the most important behavior of successful startup CEOs.
3. Make Decisions with Conviction
Make decisions with conviction, especially during a crisis, because if you don’t, the team will not follow, hindering success.
4. Expect Crises
Do not expect to avoid crises, as founders will inevitably face them; instead, focus on how to deal with them when they arise.
5. View Startup as Crisis Journey
Understand that building a startup is inherently a journey from one crisis to the next, which helps in mentally preparing for and navigating continuous challenges.
6. Solve a Problem to Create Value
Focus on solving a problem as the simplest and most effective way to create value, which is the core of the entrepreneurship journey.
7. Problem as North Star
Focus on the problem as your North Star to make fewer deviations from your course, increasing the likelihood of success and making your story more compelling to customers.
8. Focus on Customer Problem
Frame your value proposition around solving a customer’s problem (e.g., avoiding traffic jams) rather than technical solutions, as customers who care about the problem will actively help you succeed.
9. Validate Problem with Strong Emotion
When validating a problem, seek strong emotional responses from potential customers who correct your understanding or express intense dislike for the problem, rather than just knowing someone else with it.
10. Continuously Re-evaluate Decisions
Regularly ask yourself if, knowing what you know today, you would do something different; if the answer is yes, then implement that change immediately rather than waiting.
11. Act Fast to Extend Runway
To extend your run rate by reducing burn, act immediately; delaying decisions, even by a few months, significantly reduces your options and makes it nearly impossible to achieve your desired runway.
12. Analyze Cash Crisis Quickly
When facing a cash crisis, immediately determine what is impacted, how long it will last, and your remaining run rate, then make decisions today to avoid losing options and communicate transparently with your team.
13. Maintain Sufficient Runway
Maintain plenty of cash in the bank, ideally around 18 months of runway (or 2-3 years if risk-averse), as this makes it significantly easier to deal with inevitable crises and pursue new opportunities without constant fundraising.
14. Focus on Value, Not Just Fundraising
Aim for a longer runway to avoid constantly focusing on fundraising, allowing you to prioritize creating value for your company and customers.
15. Communicate During Crisis
In a crisis, everyone knows something is wrong, so communicate decisions and plans to your team to demonstrate leadership and prevent top performers from leaving.
16. Prioritize Team Communication
Communicate openly and transparently with your team during a crisis, as they are suffering too and need to know that leadership is making decisions, which helps maintain trust and prevents top talent from leaving.
17. Be Transparent with Team
During a crisis, be transparent with your team about the challenges, as hiding information erodes trust and may cause them to leave, while openness fosters loyalty and commitment.
18. Share Crisis Essence, Not All Details
When being transparent during a crisis, share the essence of the major issues (e.g., investor rejections, lost term sheets) without sugarcoating, but you don’t need to divulge every minute detail unless specifically asked.
19. Share Key Metrics Always
Always share the company’s key metrics with everyone, especially during a crisis, so the team understands the situation and can see how well the company is executing.
20. Answer Direct Questions Specifically
If team members ask specific questions about the crisis, answer them directly and specifically, as this reinforces transparency and builds trust.
21. Consider Alternatives to Layoffs
When needing to reduce costs, consider alternatives to layoffs, such as reducing management salaries or implementing a company-wide salary reduction, as these can maintain team commitment and loyalty.
22. Management Leads by Example
Management should consider giving up their salaries during a crisis, as this demonstrates strong leadership, can contribute to cost reduction, and significantly increases the commitment of the rest of the organization.
23. Avoid Trivial Cost Cuts
When reducing costs, avoid trivial cuts like stopping office coffee, as these create dissatisfaction and demonstrate an inability to make hard decisions, rather than significantly impacting the budget.
24. Navigate Product Market Fit Loss
If you lose product market fit, first determine if you are still relevant, then evaluate if you have the assets (tech, team, know-how) and energy to pivot, and present a new path to investors who typically prefer a new attempt over getting their money back.
25. Pivot Decision Framework
When considering a pivot, first validate the new problem/value proposition, assess if you have a significant advantage (tech, team, know-how), confirm your passion and energy for the new journey, validate it with your team, and then seek new capital from investors.
26. Know When to Give Up
Consider giving up only if your core mission becomes irrelevant because the problem disappears, or if the team is fundamentally wrong and you are unable to change it.
27. Address Job Unhappiness Proactively
If unhappy at work, first try to change the situation for three months; if unable to improve it, then leave, as you deserve to control your destiny and not be unhappy.
7 Key Quotes
Building a startup is a journey from one crisis to the next.
Uri Levine
Never give up is the most important behavior of successful CEOs of startups. The second one, by the way, is making decisions with conviction.
Uri Levine
When you assume responsibility, you're basically saying, you know what, I control my own destiny.
Uri Levine
If you don't make them with conviction, then the team is not going to follow. If the team is not going to follow, then you're not going to be successful.
Uri Levine
If you're not happy at your working place, then ask yourself, is there something that I can do to change that? Then try to change that for the next three months. If you're unable to change that, then leave. You don't deserve to be unhappy.
Uri Levine
For me, quitting your job, do you know what it means? You fire your own job boss. That's what it means.
Uri Levine
If you haven't failed, that's because you haven't tried new things before.
Albert Einstein (quoted by Uri Levine)
2 Protocols
Navigating a Cash Crisis
Uri Levine- Identify what is truly being impacted (run rate, product, revenue stream, relevance).
- Estimate how long the impact will last (temporary, new future, forever).
- Determine current cash run rate and how long before funds run out.
- Decide on a new plan or strategy and act immediately to implement changes (e.g., reduce burn, extend run rate).
Deciding to Pivot During a Product-Market Fit Crisis
Uri Levine- Validate a new problem or value proposition: Speak with potential customers to understand their emotional engagement with the problem.
- Assess internal assets: Determine if the existing team, technology, or know-how provides a significant advantage for the new path.
- Evaluate personal energy and passion: Confirm you have the drive to restart the entire journey from scratch.
- Validate with the team: Share the new opportunity and assess if the team believes in the new path and is willing to continue.
- Engage investors: Seek new capital from existing and new investors, leveraging existing assets and experience.