Originally published in ImpactAlpha on May 18, 2020
In the years we have spent in early-stage equity investing, often backing raw startups and paper plans, our decision to go with a venture accounts for all the usual suspects, like customer insights, market trends and entrepreneur quality.
An additional factor that is not spoken of as much is time horizon.
While near term perspectives help think through investment constructs and terms, ultimately, the decision to back an entrepreneur is driven by their longer term ambition and opportunity.
This contradiction induces a component of schizophrenia even in ‘normal’ times. In the time of COVID, we need a critical discussion of the time horizons on which entrepreneurs are working and on which we are making investment decisions.
There is no doubt that ‘immediate responses’ are important, and will occupy a fair amount of mind space and bandwidth over the next few months – survival planning, ensuring critical responses are firmly in place to provide confidence to all stakeholders (primarily customers) etc.
However, the fundamental dimension of evolving, adapting and even, establishing market leadership requires shifting the ‘time frame’ to the medium term and envisioning that scenario.
What does a ‘post crisis world’ look like from here, when one has potentially learnt to manage through the crisis? Will the January 2020 organization, proposition and assumptions still be relevant then? When is a good time to start thinking about this medium term, when it is not obvious when there will be an end to this situation.
The tensions between near-term and long-term are nothing new. For every near term perspective of annual operating plans, cash flow, end use of funds, and even unit economics and proof of a business model, there is a long term question of what scale would be like for the company if capital was not a constraint.
For every immediate priority like negotiating a liquidation preference clause, there is also a long range plan around the right governance for the company that seeks to list publicly. The list is endless.
In the COVID crisis, there will be the temptation to wait it out and get more visibility into the near term.
However, the ability to hit the ground running when opportunities arise (or are created) will depend largely on how organizations use this phase to prepare for the ‘post crisis’ scenario.
Entrepreneurs and investors that have a handle on near term priorities and are ready to look beyond the present, may be interested in what our entrepreneurs are asking themselves, and indeed we are asking ourselves at Elevar. Some of our questions:
Shifts in the lives of customers
Our early stage investments have been backed by a strong customer thesis. Given the demographic and socio-economic upheavals in this crisis, revisiting assumptions about the customer’s wallet becomes important. A lot of the old ‘givens’ will need to be questioned and where appropriate, revalidated.
While all businesses are driven by customer spending, in case of low-income households, the relative priority of the share of wallet is very important. Therefore, understanding the revised sources of customer liquidity (not just income) and identifying the shifts in the customer’s wallet (inflows and outflows) are important first steps.
Shifts in distribution models
As often happens in a crisis, several trends that were building have accelerated overnight to become dominant realities.
Adoption of technology by the customer is one such trend. The effectiveness of different modes of communication has fundamentally changed. The noise levels have also increased. What does this mean for the distribution strategy of the future? What will it take to ensure an agile response to these new realities?
Even beyond adoption of technology, several norms and touchpoints have shifted in the customer’s life. At Elevar, we are seeing some of our entrepreneurs adopt a zero-based review of the new landscape and customer ‘neighbourhood’, to evolve new ways of building distribution and customer engagement.
Shifts in solution possibilities
While crises in the last two decades have not been a patch on the current one in terms of severity, there is a common lesson from all: Nothing like a good crisis to help prioritize and find solutions that may have been dismissed as impossible or not worth the effort during normal times.
Are there initiatives that will help strengthen brand and credibility with the existing customer base, and can also be great for testing out futuristic ideas? It will be critical to innovate and raise the bar in developing products and services that cater to revised customer priorities and wallet share.
The process of innovation can start with the lowest hanging fruit, in terms of customer need and not necessarily ease of execution. In the case of our portfolio companies, this has meant innovation in terms of capital and liquidity. Many of our entrepreneurs are focusing on initiatives that address immediate problems for customers, help solidify customer engagement during the crisis, enhance current revenue streams and cash position, and lay the groundwork for the shift to the new environment, new product lines and new revenue streams.
Shifts in organizational design
We are already seeing early signs within our portfolio companies of teams shifting perspective beyond immediate problems and huddling towards an inspirational, common purpose.
It seems obvious to us (even from the outside) that the alignment within such teams flows more naturally, strengths are complemented, and there is an infectious ‘can do’ attitude.
Some of our entrepreneurs have also noticed that in this crisis, some employees are burning out, while others are significantly under-utilized – and there is a need to ensure an even flow of adrenalin.
And so, can the downtime be used to further strengthen technology, training and processes to create nimbleness during and post crisis? Can teams be repurposed to carry out these projects and can senior members be tasked with projects outside their core?
A new generation of generalists within the organization would also mean a new generation of leaders with in-depth context and renewed levels of ownership for the next phase. We feel that a version of this shift is relevant even for investors like ourselves. The organization we had originally built for June 2020 will need to be reimagined and repurposed.
Shifts in baseline assumptions
Assumptions around core values, resources, capital and style of operations will need to be revisited. These are not ordinary times and conscious efforts do need to be made to challenge historical assumptions that could completely change the decision-making framework.
These shifts in thinking will only be possible if leadership can identify, recognize and work through biases built into the organization’s DNA today. This is especially true for larger organizations where the focus often moves to execution to deal with the existing operations; those earlier in their journey will find it a lot easier to step back and rethink assumptions.
As organizations grow, the talent we bring on is either more execution-oriented in order to build out scale or is brought on to build bench strength. What then, is a good way to balance out that execution bias in order to revisit strategies and assumptions? It could be as simple as the format of leadership team review meetings to the choice of individuals chosen to drive initiatives.
In some cases, it may need a far more focused call to identify a separate SWAT team that adopts a zero-based approach, without disturbing the rest of the organization that remains focused on handling immediate priorities.
As we put these thoughts down and try to implement them at Elevar itself, we keep telling ourselves, “Easier said than done”! All the above ‘shifts’ will have to be managed while remaining in the present and staying nimble and responsive to every curveball this crisis throws at the organization.
Then, perhaps, that is what being a market leader is about. We are already seeing some of our entrepreneurs making ‘easier said than done’ look possible. One of our entrepreneurs once said that every year, “I want to look back and feel embarrassed by the previous year’s thinking.” May this passage from crisis to growth be one such watershed moment for all of us.