For founders and CEOs who haven’t yet led through sustained periods of economic uncertainty, anticipating common pitfalls can pave the way for better decision-making. GGV itself was founded in 2000 so we’ve supported founding teams through various market cycles. We’re also fortunate to turn to our community of leaders and executives who have also experienced previous downturns.
I first got to know Bruce Felt in late 2006 when he joined a GGV portfolio company, SuccessFactors, as the chief financial officer. About a year later, Bruce took the company public—just in time to face the Global Financial Crisis and see SuccessFactors’ stock plunge from $15 per share down to a low of about $4.
SuccessFactors weathered that economic crisis, ultimately turning things around and selling to SAP for $3.4 billion (or about $40 per share) in early 2012. Bruce is now the CFO at Domo, a cloud-based business management platform that went public in 2018. Though he plans to retire from Domo this year, Bruce is leading the company through various scenarios around budgeting.
So what do founders, CEOs, and other leaders actually need to know about architecting and planning the budgeting process in times of turmoil?
Here are some of Bruce’s top budgeting tips based on lessons learned the hard way:
If you haven’t already adjusted your mindset, pivot from planning around growth to planning around cash preservation. “You’ve got to buy the time to live through this,” Bruce says. “Investors will understand that you made the trade-off [of growth] to protect cash.”
For small businesses with limited cash, cash flow matters the most; for bigger businesses with more resources, Bruce says, it’s all about operating margin.
As an experienced operator who sits on both public and private boards and who also invests in venture funds, Bruce is currently modeling about 10 different scenarios for Domo with one constant: keeping the company’s operating margin positive.
“Committing to this operating margin under any condition means if the top line gets softer, we’d have to cut expenses more,” Bruce says. “Pick a number that you can live with, that your board can live with, that derisks the future where you don’t need to get more financing—that’s the holy grail. Grow as much as you can, but the constraint is that cash burn number.”
To secure buy-in from the rest of your leadership team, Bruce suggests a two-pronged strategy:
“Scenario X is what we’re going for,” Bruce explains. “Scenario Y is how we’re going to manage expenses.” This spreadsheet of multiple scenarios analyzes what’s going on in the business and “gets the whole management team on the same page to make rapid-fire decisions, which is really what you need to do in this environment.”
As a founder or CEO, you’ll encounter a lot of “noisy data and non-patterns,” Bruce warns. “But you have to spend the time to understand [the data] so you can make the call on what it means to the business and how it’s going to play out.”
For founders and CEOs facing tough choices, it can help to draw on others’ experience.
Whether it’s a board member, CFO, or another trusted leader, “get as many people who have seen this movie around the table … Get their input just so you can see the mosaic, the full story of what’s probably coming at us,” Bruce says.
But for the hardest decisions, Bruce recommends that you avoid trying to get consensus. Instead, seek the right input to help you make the best decision.
Tough calls may include implementing layoffs, Bruce says, but “what we’re trying to do now is if we stick to this discipline of locking into this number and giving up growth, we won’t have to face another cut no matter what is happening in the market.”
Remember: “The market has crashed 70%-80%. That's just the way it is. We didn't make that happen. It happened. Your performance didn't make it happen. The market did it to you … Listen to your best adviser, and get input so you have the confidence to tell the people to do what you need to do.”
While no one knows for sure what’s around the bend, history does have a way of repeating itself. With Bruce’s input, we hope founders and leaders in GGV’s portfolio are better equipped to make the tough calls that only they can make.