Five Lessons from Past Crises

June 01, 2020

Growing up in a small Canadian town on the shores of Lake Huron meant sailing became part of my life from an early age. And though I am a decidedly mediocre sailor, I always enjoyed those hours out on the water, full of sunshine and sea spray. That is, until the first time I went out thinking I was in for a pleasant afternoon — only to be walloped by a ferocious wind and drenched by a thumping wave.

My love for sailing grew stronger through that first sloshing, and so has my tendency to find in sailing a great metaphor for business — and for life. I agree with Franklin Roosevelt: “calm seas never made a good sailor.” Innovation thrives under adversity, and most enduring companies are born during recessions or forged during tough times. That’s because difficult times attract exceptional entrepreneurs — those building companies for the right reasons, not because it’s fashionable. These entrepreneurs act on an earnest desire to solve a problem that is deeply personal to them, in a unique and durable way. They embody this quote by John Maxwell that I find myself coming back to:

“The pessimist complains about the wind. The optimist expects it to change. The leader adjusts the sails.”

Over the course of my career as a technology operator, I have seen my share of storms — from the dot-com bust to the financial crisis of ‘08-’09 and turnarounds of some iconic brands. In this series of posts, I will share with you my own perspective: the lessons learned and mistakes made from operating in previous downturns and turning around Evernote.

In this first post, I’ll outline five key approaches to adjusting your sails. In part 2, I’ll discuss the importance of caring for and up-levelling your crew. In part 3, I’ll share what I see on the horizon for entrepreneurs and private investors. (This series was developed from a talk on all three topics I gave as part of SaaStr’s New New in Venture Summit. A full recording of the presentation can be found here.)

So, without further ado, let’s set sail.

1.Batten Down the Hatches

In any crisis, priority number one is to stay afloat. Forget where resources have been. Where should they be? Instead of trying to predict the future, run scenarios. Outline the worst, base, and best case scenarios, and decide how you will respond in each.

When I arrived at Evernote in 2015, we had less than twelve months of runway. To stay above water, we had to get into shipshape — and fast.

To make strategic cuts, we adopted a “zero-based” approach to budgeting. That is, we scrutinized every line item of expense through the lens of our top priority — survival. After rigorous debate among the team, we closed five offices and said goodbye to many talented colleagues. We shut down Evernote Market and sunset niche products like Evernote Food that were distracting us from higher priorities. And we did so thoughtfully — treating employees with dignity and compassion, notifying our user community and partners well in advance.

These decisive actions allowed us to extend our runway by at least six months, providing us time and resources to get “back-to-basics” on our product. We worked on reducing crashes, latency, and the number of bugs in our software — all of which had grown unacceptably high over time. We also ran dozens of growth experiments to improve engagement and successfully optimized our pricing model.

2.Orient Toward Your North Star

Startups tend to veer off course soon after launch, and stormy seas amplify this tendency. Therefore, it’s important to know where you are relative to where you want to go. Investing leadership time in clarifying direction and current reality is a high-leverage, important priority.

In the days before GPS, sailors used the polestar to guide them to their destination and determine their latitude along the way. Clarifying your company’s “North Star” is often overlooked, but it’s essential to ensure you’re heading to the right destination. Your North Star is your purpose, your mission, your objectives. At Evernote, our community clearly told us that our original purpose was more relevant than ever. People were seeking to gain control in a world of information overload. They wanted to feel more organized and productive. That’s the job Evernote was hired to do.

Our mission was to help our customers remember everything and turn ideas into action. Moving forward, we translated this vision into our objectives, our measurable goals: to focus on the core user experience and recapture the user love that made our company the pioneer of cloud-based digital productivity. Clarifying our North Star created a shared sense of purpose throughout the company, and helped us stay on course.

With clarity on direction, it’s helpful to establish where you are, your “Ground Truth.” Your Ground Truth is a shared understanding of your current reality — your business, your customers, your product, your balance sheet, and your team. Make sure that everyone at your company is working with the same set of facts, especially when those facts are changing quickly.

3.Chart a New Course for Growth

Once you set a bearing, you’ll need to chart a course to cross those waters. This starts with a clear, shared understanding of how growth happens. And for that you need — literally — a map.

Your “growth map” explains the physics of how your company’s inputs translate into outputs that matter. In a B2B setting, you can overlay a clear model and playbook for how you approach awareness, evaluation, purchase, pricing and renewal. This map allows teams to coalesce around facts — not opinions — and redeploy resources to the slowest gear in your growth engine.

Cohort analysis is an essential complement to your growth map to understand customer engagement with your product. Specifically, you’ll want to measure “growth” (size of each cohort), “engagement” (ratio of users in each cohort completing the core action of each product), and “retention” (cohort performance over time). I highly recommend Sarah Tavel’s classic presentation on the hierarchy of engagement to better understand this process.

At Evernote, cohort analysis helped us shift from vanity metrics like registered user growth to an obsession with our core action: a user creating a note. Through rigorous analysis, we discovered that once someone took 10 notes and logged a session 3 out of 7 days, they were hooked. This clarity helped prioritize our product roadmap, among many other things. A clear and nuanced understanding of how growth happens and how cohorts perform over time allows for systematic experimentation to unlock growth.

4.Get Close to Your Customers

Charting your course to growth requires increasing your communication with customers and prospects. Their needs and priorities have changed, so listen to learn how you might best serve them and stay top of mind. In the process, you must “learn to unlearn.”

My friend and three-time entrepreneur Bob Tinker has a vivid metaphor for this “unlearning” process. In the early stages of building a company, Bob says, you’re in “Davy Crockett” mode. Like backwoods explorers, you and your team are finding your way through the woods through experimentation and iteration. It’s messy, and there’s no roadmap.

Crises require us to step back into Davy Crockett mode. Companies naturally have muscle memory — a set of reflexes to the problems they’ve faced in the past and the solutions they’ve found over time. As of two months ago, those problems are different, and so are the solutions. Instead of charging ahead with your existing value proposition, you must adjust your value proposition, messaging, positioning, and likely your product as well.

This crisis is an opportunity to re-discover urgency — that special thing that will compel customers to buy your product. Right now, there are two smart moves: one, to jibe towards saving customers costs. Two, to tack and creatively position what you offer as “essential” to how people will live and work, or how companies will operate going forward.

In the teeth of the Great Recession, Google faced its first-ever down revenue quarter in Q1’09. (Yes, even Google stumbles in tough times.) At the time, I led Google’s Retail team as we shifted to a “more for less” value proposition. Specifically, we showed retailers that we could deliver the same or more traffic for 30–50% lower cost. We sent simple but powerful spreadsheets highlighting the specific cost savings and return-on-investment by product category. As companies saved costs, Google became essential. Not only did the pivot get us through the next quarter — it changed the game of media spending.

Listen carefully for how to adjust to support your customers. Your loyalty will not be forgotten when things return to “normal.”

5.Reconsider Your Pricing & Packaging

Beyond rethinking your value proposition, now is a great time to reconsider pricing. I believe pricing is the most important lever for software as a service (SaaS) companies. It’s also the least understood.

There’s a very uneven distribution of economic impact in today’s crisis, with some businesses struggling to meet demand, while most are struggling — or will struggle — to retain and find customers.

If you are struggling to keep up with demand, it’s tempting to hike prices and ride the wave. But this is a risky decision, as it feels like gouging customers and is likely to lead to negative brand perception over time. Instead, there might be an opportunity to provide an added premium layer to your product or extra “white glove” services — and charge a premium for those new products or services.

Meanwhile, most companies are urgently trying to prevent churn and preserve customers and long-term ARR. Remember: it is harder to find new customers than it is to re-sell to existing ones when things improve. To sharpen your focus, classify customers by risk and value — and then double down on high-value customers. Not all customers can be saved, and not all customers need saving.

While one approach is to offer a lower price in return for an extension of contract length, I have found success with other creative approaches. You can try to offer “more for your money” through no-risk trials, free cancellation, performance rebates, loyalty credit, extended payment terms, or increased service level — just to name a few ideas.

While the next few quarters promise anything but smooth sailing, you can steer your way through these perilous straits. Now is the time to break out that compass and reorient your team toward your true purpose — and above all your customers’ new needs. With the right strategy, you will harness a spectacular opportunity to accelerate change and emerge from this crisis with the wind at your back.

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