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The Recession Planning Framework for Startups

The document discusses the impending recession and outlines a planning framework to navigate it, focusing on key questions about its severity and response strategies. It presents various macro scenarios and operational strategies, emphasizing the importance of disciplined decision-making based on economic indicators. The document also highlights potential impacts on new annual recurring revenue (ARR) and churn rates during different phases of the recession.

Business◦
Related topics:
Business Model.•Insights on Software Development• Software as a Service•Thought Leadership•
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We are entering a recession (this is probably not a surprise to you)
Only 2 questions matter right now How bad will it get? How will you respond?
RECESSION PLANNING FRAMEWORK Macro Scenarios (How bad will it get?) OperationalStrategies (Howwillyourespond?) Out of your control In your control
RECESSION PLANNING FRAMEWORK Macro Scenarios (How bad will it get?) OperationalStrategies (Howwillyourespond?)
THAT’S A LOT OF BOXES. WHICH ONE DO I PICK? It’s a chess board. Not a dart board. Every square is playable on a chess board. You decide which move is best based on your opponent’s move. Here, your opponent is the recession. Action item: populate every square like worksheet. Then define the signals you’d see in your data that would trigger a move to a new square. Last, most difficult step (by far): maintain discipline to follow through and make the move. VS
GETTING THE RIGHT SET POINT FOR THE CHESS MATCH No Economic Impact • 100% new ARR attainment • No extra churn Economic Ripple (0-6 mos) • 75% new ARR attainment • 1.25x churn multiplier Economic Recession (6-12 mos) • 50% new ARR attainment • 1.5x churn multiplier Economic Reset (12-24 mos) • 0% new ARR attainment • 2x churn multiplier Original Budget • No change in spend/burn Reduce • Hiring freeze • Reduce discretionary spend • Prioritize new strategic initiatives Refactor • RIF • Reduce facilities/rent spend • Refactor GTM Reset • Additional cuts to reach CFBE Too Aggressive (you might die) Too Conservative (you might lose) Just Right (but still hard)
WHERE ARE WE NOW? No Economic Impact • 100% new ARR attainment • No extra churn Economic Ripple (0-6 mos) • 75% new ARR attainment • 1.25x churn multiplier Economic Recession (6-12 mos) • 50% new ARR attainment • 1.5x churn multiplier Economic Reset (12-24 mos) • 0% new ARR attainment • 2x churn multiplier Original Budget • No change in spend/burn Reduce • Hiring freeze • Reduce discretionary spend • Prioritize new strategic initiatives Refactor • RIF • Reduce facilities/rent spend • Refactor GTM Reset • Additional cuts to reach CFBE 0% chance. Possible. We are here today. Somewhere in the middle.
BUT, BUT, BUT…