Editor’s note: Each week Maynard Webb, former CEO of LiveOps and the former COO of eBay, will offer candid, practical, and sometimes surprising advice to entrepreneurs and founders. To submit a question, write to Webb at dearfounder@fastcompany.com.
Q. I’m trying to decide between raising a round and trimming expenses. Due to coronavirus we’re not hiring so we don’t need [in-house] recruiters, and there are probably some [other] people we could let go.
—Founder of a very successful platform company
Dear Founder,
I’m sorry you are going through this. Like so many founders, you have a lot going on. Let me try to unpack your question.
First is the cash situation. It sounds like things were going fine before the coronavirus struck and you were not needing to fundraise. Now, because the economy has shifted you have concerns about your cash position. That makes sense—you are being affected by the coronavirus crisis and you need to deal with it. Cutting expenses that you no longer need, such as a recruiter, is a smart idea. But it might not be enough, so raising money from your existing or new investors may be the right move as well. Yes, the terms may not be as advantageous as they would have been before the crisis, but if you run out of cash you won’t survive. You should have 18-24 months runway. And if you don’t, raise the money.
Next, we have to address another situation. For you, and for so many of us (as individuals and even as a nation and a world), the current crisis has not only ignited problems but also exposed issues that have previously been swept under the rug. You mentioned that there are some people who probably should have already been let go. I know it’s hard, probably one of the hardest parts of the job, but poor performers should be managed constantly, not just when you’re cutting costs.
You must keep your house in order at all times. Either the performance issue has to get fixed or the poor performers need to be managed out. Of course, you are not alone in your predicament. Some studies show that hires don’t work out 50% of the time. A few things to consider in order to better manage the situation regardless of whatever we are facing externally: