The COVID-19 pandemic has changed the world’s economic landscape, and those companies and CEOs who can’t change with it face extinction, says one of North America’s most authoritative entrepreneurial voices.

Steve Blank, Silicon Valley veteran, author, professor at Stanford University and originator of the customer development model that underpins the “lean startup” movement, says that companies can not only survive the global economic crisis, but can thrive. What that will require is a rethinking of how to do business, and what business will look like on the “morning after.”

Blank was recently in a socially distanced video conversation with Ian McDonald, Chief Customer Officer at Communitech; Martha van Berkel, CEO and co-founder of Schema App; and Debbie Gamble, Chief Officer of Interac Labs and New Ventures, discussing the new world order for startups, scale-ups, large corporations and their investors.

To hear Blank’s complete comments on the various issues, see the video at the bottom of this page.

Blank said that the global economy has entered uncharted territory, with impacts on the tech sector akin to the dot-com crash of 2001, “where 90 per cent of startups just disappeared.” While he warned that this is a “mass extinction event,” he also advised that “there will be a morning after… it’s an economic downturn that we will recover from.”

And before, during and after this downturn, there are steps that startups, major corporations and the people who invest in them need to consider to both survive and thrive in the new economy that will emerge.

Responding to a question from van Berkel about opportunities for startups and scale-ups, Blank advised that companies that outlast the crisis will have CEOs who can “rapidly assess new circumstances, recognize new patterns and opportunities and most importantly, act with a speed and urgency to take immediate action to pivot and restructure the companies. I say that because those that don’t, aren’t going to survive.”

Blank offered a simple formula for company survival: “Your survival equals the speed of your understanding of the situation . . . times the magnitude of the pivots and cuts and lifeboat choices you need to make, times the speed of your time to make those changes.” He counselled against the corporate default of study groups and consensus-building. CEOs will have to make decisions based on imperfect information, something startup founders do often. 

Blank suggested that “for large companies, the people who are actually great at this are turnaround CEOs.  . . every CEO of every large company needs to operate like a turnaround CEO.” By seeing a company’s strengths and weaknesses with a fresh perspective, the CEO can decide what can stay, what needs to go and what kind of pivot is required. Key, he said, was speed: “the future of the company depends on your ability to make rapid decisions and start acting now.”

Van Berkel noted that Schema App, which helps digital marketers make their web pages more easily discovered by search engines, is a bootstrapped startup that doesn’t have to worry about venture capital drying up. Blank suggested that a fresh perspective could be applied here, too, in that investors might be interested in a company that taps into the rising regard for online shopping. He noted that many bootstrapped firms choose to grow organically because of intention or because investment dollars are committed elsewhere, but as investors leave some companies behind, they may be looking for other opportunities. What would a startup do if there was the opportunity to attract $5 million?

For any company, Blank advised: 

  • Examining clients and potential clients: Is their customer base secure or fading; 
  • Read Bloomberg or Pitchbook to learn more about existing and potential clients;
  • Are there new or emerging markets;
  • Do the interests of you and your partners still align? Should you seek new partnerships;
  • Are there sources of additional capital; 
  • What is the business model and operating plan (it can’t be the same plan that was in place at the beginning of March); 
  • What are the potential pivots; 
  • What kind of cuts must be made to the operating budget (spending on marketing, for instance, should be reviewed); and, 
  • If cash flow is an issue, what goes into the lifeboat? 

Gamble, noting that so many companies consider staff their greatest asset, asked about cultural advice in a crisis.

The CEO needs to communicate with staff every day, said Blank, “and I mean every day . . . just a short video and it should be informal . . . it’s OK if you look a little dishevelled because your workers are all dishevelled right now . . . Keep people in touch and let them know you’re working to keep them employed and the company afloat.”

Blank said it makes him angry to see business leaders in a position of comfort while their workers are struggling on the frontlines: “I would force the board and the C-level staff to work that job for 24 hours.” 

He suggested that C-level staff need to acknowledge the disruption that has happened to their staff, and support them, whether that’s through equipment upgrades, network installations or counselling for stressed families coping with at-home workplaces.

CEOs still are the ones who have to make the tough decisions about cutting staff. “. . . the biggest mistake I’ve seen over 40 years in business . . . is watching people do this a piece at a time, destroying morale, and worse, productivity, by not doing it all on Day One.” Rather than cut 100 people one week and then another 100 two weeks later, leaving all staff wondering who will be next, cut deep and rehire as necessary.

And there will be opportunities for large companies with cash because so many assets will come available: “. . . this is a huge opportunity to pick up people and asset resources you never could get or afford. All those AI, machine learning, big data people you could never get . . .  they’re on the street.” Those assets could also be capital investments such as manufacturing plants or networks. Buy them now, “because, when recovery comes, you’re going to own some assets that your competitors don’t, or didn’t have the cash to acquire.”

If you are an investor, Blank has this advice: “Now, if you’re an investor in a VC fund, you are thinking, hopefully, first tactically a lifeboat strategy, but then strategically, what are the opportunities here? Opportunity One for every investor in this time is, unfortunately, how to be a vulture capitalist rather than be a venture capitalist . . . the real smart ones will be figuring out how do you invest in things that will take advantage of the changed nature of the economy that will occur when we recover.”

And Blank could see several opportunities in the new economy:

  • The move to remote transactions and information exchange has expanded the attack surface for bad actors, and reveals new opportunities for online security both in the financial sector and in government.
  • Much attention has been focused on the “work from home” model that may make costly office space unnecessary. But Blank also pointed to the quick acceptance of remote learning, asking why parents would spend thousands of dollars to house their children near a college when they can learn from home.
  • Online consumer spending has soared, giving companies such as Interac access to a trove of data about the pulse of Canada’s economy. (“If I was a hedge fund, I’d be buying your company just to have access to that data,” Blank told Gamble.)

McDonald asked for takeaways about Waterloo Region’s tech ecosystem, and Blank advised that such ecosystems need smart people and great universities, but also risk capital. “In this crisis, the government of Canada and the province cannot allow risk capital, investment capital, to go out of business . . . ” Canada should be assessing what supports are needed to keep that capital in the Canadian market. 

McDonald also asked about collaboration in a time of remote connection. Blank suggested that “. . . how to do the collaboration piece remotely is a Big Idea. How do you on-board people remotely? How do you train them remotely? How do you get them to collaborate remotely? . . . There are very few tools that allow that to happen. I think of all the places that I would expect them to come from, it would be Canada.”

Blank tied up the session by hammering home the message about action: “I think for everyone, your business model and operating plan that you had on the 25 of March, it’s obsolete. If I’m on your board and you’re still talking about that plan in three days from now, you’re the ex-CEO, because this requires speed and urgency. The world has changed. You have to tell me how you are changing with it now. Or else the market will decide for you, and we don’t have time for that.”