Two contrasting events took place yesterday. First, as we got to the end of a board meeting, the founders initiated a discussion on when to restore salaries to pre-COVID levels for the team and the management. Later in the day, my dad sent me an article on my investee company, Purplle, [ramping] up headcount. Considering the volatile nature of this recovery, I wondered how you are thinking about increasing salaries or ramping up the team.
Things have not been as bad as they were supposed to be when economies started shutting down. Offline retail suffered, but there is a strong revival in the digital economy as consumers quickly shifted to transacting in the new normal. Many companies that may have had feared major disruptions in work found out that not only did work-from-home work, but people were more productive than they were at the office. Now that the worst of the storm weathered and the coast looks clear – is it time to break open the champagne?
I don’t think so.
It is easy to get lulled into a false sense of security that things are back to normal. Barring a select few, most startups have yet to exceed Feb 2020 revenue numbers, i.e., they would burn more money if they increased costs to pre-COVID levels before revenues got restored to pre-COVID numbers.
You must also not forget that your startup’s budgets are forward-looking; therefore, investments in people and products or services get made today to get repaid through revenue growth and an increase in profits or margins. Thus if your startup has just achieved pre-COVID revenues, it is an achievement to pat yourselves on the back for, but your Jan-Mar budget got approved for much higher revenue assumption for July. Let us not forget that.
Besides, it would be best if you did not forget that the world is not yet out of COVID’s grasp. Just yesterday Hong Kong reported the world’s first confirmed case of reinfection, the lockdown got extended in Auckland, India reported it 60,000th death from COVID, and a Bloomberg reporter asked Did Europe Make a Mistake Reopening Its Borders?
We are not out of the woods yet, and it will not only take the successful creation of a vaccine but also the successful mass production and wide-scale distribution of the vaccine to say that we are in safe waters. As entrepreneurs, it is in our nature to be positive, and we should attempt to capitalize on every opportunity that gets presented to us – but you must continue to toe the line of fiscal prudence and make incremental adjustments to your budgets and team strength.
Despite the gloom that surrounds us, it is vital to keep your team motivated to fight, and to stoke that fire, you must get them to buy into your startup’s success – and help them profit from it. To keep the fire lit, I suggested setting up a quarterly bonus for the team based on cash in the bank.
- Set up a quarterly budget which whittles down to the exact cash that should remain in the bank account
- Share that budget with the team and explain your rationale for the budget. Encourage the team to provide feedback on the budget and adjust if required.
- Track the progress towards the budget on a bi-monthly basis and encourage the team to participate in helping with either reducing costs, improving productivity, or increasing sales. If you can get each team member to push 1% harder – they can create energy that could move a mountain.
- At the end of the quarter, share the final cash balance with the team. Deduct any costs that are provisioned but not paid out and do not add revenues that got billed but were not credited.
- If the cash balance in more than the budgeted number, distribute 25-30% of the excess cash to the team. This achievement is as much theirs as it is yours.
Getting each team member to buy into the success of your startup is the hallmark of a robust culture, and there isn’t a better opportunity than this adversity to build that culture!