26 AUGUST 2020
How businesses can thrive in the New World Order
Adversity is opportunity. We are currently in the middle of a massive reshaping of the global social, economic and political climate, which has been accelerated by the COVID-19 pandemic. For some this is completely disrupting their traditional way of life – millions of jobs have been lost, entire industries have gone extinct. For others, this global dislocation presents an exciting opportunity to build, mold and grow the future. Entrepreneurism is the tool that will allow us not only to survive but thrive in this new world order.
I say this from first-hand experience. I took an incredible risk and joined my first start-up on 1 April 2009 during the deep depths of the Global Financial Crisis. The same dynamics were present in the world at that time – massive market dislocation, widespread fear, a feeling that it all may come crashing down. However, within this uncertain environment opportunity abounds if only we can step back, think strategically, and take calculated risks. The startup that I helped build during the Great Recession ended up being the most financially successful of my career. Adversity was an opportunity only because we capitalised on uncertainty.
Fast-forward to the present. I am now the CEO of Stellenbosch University LaunchLab, which is effectively a startup that builds startups. Some could look at this situation as multiplying risks to almost exponential proportions. Startups are risky, right? A startup building startups?! Whoa – way too much risk. I vehemently disagree. The pandemic has provided us an opportunity to step back and examine the business we are building. It has forced us to become laser focused on the few items that truly matter for long-term survival therefore allowing us to say no to many divergent paths. It has brought us closer as a team centered on a clear mission – to transform seemingly impossible into world-shaping.
So, what businesses will thrive in the new world order? I break this down into two categories:
- General characteristics of rock-solid companies that will have the runway and the flexibility to seize opportunity.
- Based on macro trends that have now been exacerbated by the pandemic.
Let us look at the first category in this article:
The world has been flooded with cheap, risk seeking capital for the last 12 years. This has allowed many unsustainable business models to live longer than they should by effectively supplementing negative cash-flow from operations with cash-flow from financing. This dynamic has come to an end. Businesses that will thrive going forward will be real businesses.
I focus on three metrics to help define this point:
- Cash is king. All early-stage startups are simply trying to locate product-market-fit before their runway ends. This simple fact highlights the components of our first important metric – cash in the bank vs burn rate. You always want to have > 24 months of runway. Businesses that can generate cash or minimise spending will outperform as they give themselves the time to find product-market-fit.
- Fixed cost as a percentage of revenue will be a key determinant of success. The more fixed cost the less flexibility to pivot & iterate the business model to meet changing market needs. Agility will win. Make your business agile by trading fixed for variable costs. There are creative ways to do so. Making it happen may be the difference between going down with the ship or smooth sailing.
- We must re-examine our customer value proposition. Products that worked in the past have become obsolete overnight. If you have seen recurring revenue drop or customer churn skyrocket, then you will know this is the case. At SU LaunchLab we use Design Thinking to connect with our customer. By following the five stages – empathy, define, ideate, prototype, test – we design a product and platform that is educated by and meets the needs of the market. We will know we are moving towards success when we achieve 300%+ year-over-year revenue growth with a high percentage coming in as recurring revenue from customers that love our product as demonstrated by little to no churn.
Let us be clear – the world will never be the same. That is not a bad thing, it is simply a fact. The businesses that thrive will be the ones that subscribe to metrics that matter then focus on executing them with laser focus. By doing so they will help us all see the bright light at the end of the tunnel. Global disruptions are here to stay. By thinking strategically, you can ensure your business is as well.
Joshua Romisher is the CEO of Stellenbosch University LaunchLab.