San Francisco — Even if the summer is just coming to the northern hemisphere, the cold winds of crisis are blowing from San Francisco to Tierra del Fuego at the southern tip of the Americas. “The winter storm is blowing,” Michelle Messina, a Silicon Valley strategy expert and consultant on business acceleration and startups, said in an interview with Bloomberg Línea.
“We are facing some years of low growth ahead. Entrepreneurs must think about what to do to keep growing and scaling, but cutting costs, and thinking about how they can depend on technology to automate processes,” Messina said.
She believes that to survive this cycle, a company needs to figure out how to navigate it without the need for external capital, simplifying operations and automating as much as possible to minimize dependence on staff.
The decision to fire people or not will depend on the company’s business model, according to the consultant. She says it will be critical to look at some metrics, especially revenue per employee, as well as answer questions like how the market is performing, how big the business is, how often the company closes deals with new customers, and what the turnover is.
“I don’t have a crystal ball, but if I had to guess, I think we’re really at the beginning of a long winter, and that’s obviously going to have a reflection on the private market”
Fabien Méndez, CEO of Loggi
The need for efficiency
Luis Silva, CEO of Cloudwalk, a Brazilian payments startup valued at $2.15 billion, said that the recipe for not firing staff is “to be very efficient”. “Our team has around 420 people spread over 15 countries. We are the most efficient payment company in the industry, and our revenue per employee is 50% higher than our competitors. The trend is to increase this by around 10 times in the coming quarters”, said Silva, in an interview with Bloomberg Línea.
“We’re taking advantage of the fact that other companies are laying off and inviting the best people to join CloudWalk,” he said.
Loggi, a Brazilian logistics unicorn, raised a $212 million Series F last year. The company’s CEO, Fabien Méndez, said that the startup has not made any layoffs, and that the decision to cut staff depends on the company’s cash situation.
“Some companies were preparing for a 200% growth, and now they will only have 50%. It’s not a cake recipe. It’s case by case, but in general, a lot of companies had this gigantic growth perspective, which now is going to be moderate,” he said.
After a record year of investing in Brazilian startups, which accelerated their “job offers every day”, according to Mendez, “things are now getting back to normal”.
“I don’t think there will be a lack of work for those who are qualified. I see a lot of demand, but people are not going to get a job offer a month,” he said in an interview with Bloomberg Línea.
Even with Loggi as a late-stage startup, Méndez says he does not see “any relevant technology IPO in the next few years”.
“I don’t have a crystal ball, but if I have to guess, I think we’re really at the beginning of a long winter, and that’s obviously going to have a reflection on the private market,” said the CEO.
Mendez, who founded Loggi in 2013, warns that entrepreneurs now need to reduce their focus on explosive growth.
“Just having less growth at any cost, you get greater efficiency,” he said, pointing out that Loggi was planning marketing campaigns to target small and medium-sized companies, and now intends to “grow more slowly”.
“Our growth factor will depend much more on good service. We will get to the market penetration we want, but it will be a little slower and more efficient,” said the CEO.
Contrary to the logic of startups “moving fast and breaking things”, for Mendez, the focus on operation and efficiency has made Loggi’s path even “more pleasant”.
“Sometimes this explosive growth generates a lot of frustration, it tires teams and customers. The simple fact of being more ‘zen’ is a very positive thing. Focus on what really matters: customer experience, satisfaction, and unit economics. I think it’s good that we go through a moment of greater rationalization”, Mendez said.
The CEO said that Loggi reached breakeven last year, and that “it will reach it again soon”.
But growing slowly is not CloudWalk’s goal. The fintech also does not generate profit, but, according to Silva, the company can be profitable “whenever it wants to be”.
“We prefer to reinvest that profit in the company’s growth,” he said. “Our valuation was not harmed because our pace of growth is very fast. That’s why we managed to raise more than $365 million,” Silva said.
CloudWalk is investing in an open Blockchain infrastructure called CloudWalk Network. In this newly launched network, any developer can create applications.
The fintech launched the Brazilian digital currency (BRLC), a crypto given as cashback to customers who make payments at establishments through the startup’s acquiring point-of-sale (POS) InfinityPay.
According to Silva, more than 130,000 Brazilian users manage BRLC, a cryptocurrency that can be used for payments at more than 280,000 outlets that use the fintech in Brazil.
“The network is a vision of the future. We believe that Blockchain technology will replace all tracks of the financial system, whether investment or payment.”
Tough times to be a CEO
Messina coaches two Brazilian CEOs for strategy and business. The consultant closely followed the financial crisis of 2008 and 2009 and the bursting of the dotcom bubble in Silicon Valley in 2000. She has witnessed Apple, Facebook, and Amazon survive and reinvent themselves in crises like these.
“I’ve seen these cycles where the idea sounds really good, but either the leadership can’t navigate it, or the company’s business model isn’t compelling enough. Or it doesn’t deliver enough value to the consumer for the company to survive. We have seen this with the pandemic in sectors such as travel and entertainment, and we will see it again,” Messina said.
“Tough times force people to discover what attributes and characteristics they need to be resilient, and flexible. I find it hard to teach resilience, but this winter is going to separate the good companies from the great companies,” she said.
Here are some tips entrepreneurs can follow to prepare for the ‘winter of crisis’, according to Silicon Valley expert Michelle Messina:
- If you have a line of credit, get double the credit
- Have an insurance policy
- Pay your debts immediately
- Automate as much as you can
- For all the people you want to keep in your company, begin the tenure interview by asking why they want to stay with the company. Ask what is broken and what needs to be fixed. They know the answers.