Speaking in Indianapolis on 12 April 1959, John F. Kennedy said that the Chinese word for “crisis” is written with two characters, one for danger and one for opportunity. The etymology is inaccurate, the second character means something closer to a turning point than an opportunity, but the observation it carries holds: in a crisis, myopia and fear usually prevail, while successful CEOs keep sight of what becomes possible on the other side of it.
“When written in Chinese, the word ‘crisis’ is composed of two characters - one represents danger and one represents opportunity.”
John F. Kennedy, Convocation of the United Negro College Fund, Indianapolis, 12 April 1959
This briefing looks back at mid-2022, when many fast-growing tech business models faced a potential liquidity crisis after years of relying on cheap, fast access to capital. As monetary policy turned and tech stock valuations fell, funding became far harder to secure. That posed a significant threat to those companies’ plans and required swift action in numerous cases, and extremely high clarity in all of them.
What happened: the times of cheap money ended
In the last years, capital was a close to free resource. Valuations were sky-high and investors were queuing to invest in fast-growing tech and SaaS companies. Growth was often driven at
any cost, while monetization was second priority to many companies. A quick recovery of the 2020 Covid Crash is not going to repeat itself.
Loss in value (Jan 22- Mid-June 22) of selected share indexes and Bitcoin
What changed: the paradigm shifted towards profitability
CEOs cannot assume that a fast recovery will occur. No one knows how macro uncertainties are going to unfold on the monetary and on the real side of the economy.
The only option is to prepare fast and make sure the business model is resilient to flat or even worsening conditions. There are two dimensions to that question in the short term:
- Ensuring sufficient runway, if the company is already burning money, the runway should be extended as much as possible. This will lead to a) avoiding an existential threat where it will not be possible to raise at all or at favorable terms and conditions and b) it will provide additional degrees of freedom to adopt the business model if needed.
- Stress-test your business model, assuming capital will not be abundantly available going forward, is the business model capable of delivering sustained profitability or at least show the concrete potential to do so?
Both dimensions should be evaluated fast and any necessary adjustments should be implemented quickly.
Once the first dust had settled: rebalancing the mechanics of a strategy framework
While there is a strong focus on runway and cash-preservation, CEOs must not lose sight of the strategic implications. At a bare minimum, the company’s strategy framework should contain a couple of key dimensions: clarity on the direction ideally articulated in a clear vision and purpose statement, an in-depth understanding of the business and scaling model, precise and well- defined strategic goals as the basis for a solid KPI system and a business case and short-term execution framework. These strategic mechanics may need to be adjusted and rebalanced.
A first step in the analysis should be the development of a “risks and opportunities” map. There may be key business model risks, if e.g., growth is dependent on high customer acquisition costs and long payback times or access to future fundraises. At the same time, both internal opportunities for organizational change or focus and external ones, e.g., M&A may arise.
An assessment of the urgency and needs to change should follow, based on the strategic impact, leading to a revision of the strategy framework and meeting the needs of the new situation. The whole exercise should be done in a pragmatic way, as we live in times of very high uncertainty and the adoption of strategic focus needs to be done with a highly agile mindset.
