I remember my disbelief when I heard that entire cities and regions were under quarantine because of the corona virus. What an impact that must have on everyone’s lives. For a few days I was haunted by images of an anxious family glued to the TV. Or bored teenagers stuck with an iPad. Reality turns out to be something quite different now that we all have to stay at home as much as possible.
Nonetheless, the measures have thrown many companies into acute difficulties. At first, I was somewhat surprised by some companies that turned out to just have 1 to 3 months of runway. Managing your runway is crucial for a start-up. Having 1-3 months of runway is only permissable if you are sure that new funding will be forthcoming in those months. Your runway is, put simply, the number of months that you can still operate on the basis of your current burn rate. Except for most start-ups, it’s often the case that there is no monthly income yet to speak of.
Burn rates vs bad management
If revenue is likely but not set in stone or relatively limited compared to expenses incurred, it is best to leave this out of your planning. That’s why a burn rate for start-ups is often merely: the number of months you can still operate based on your current cash balance divided by your monthly expenses. But for companies who do manage to generate turnover, expected monthly revenue is also taken into account when calculating the burn rate. And for that, they sometimes have years of data at their disposal for determining projected turnover.
So a short runway is not necessarily a result of bad management. But rather something that seems to be ‘a glitch in the matrix’. Who, by default, always plans for a total lockdown of the entire world? It’s nice to see what help is being offered to companies in need. Not only by the government, but also by companies to each other. Hopefully we can all share the burden a little and the help offered will all arrive on time.
Uncertainty requires flexibility
Based on the responses and questions over the past two weeks, I have noticed that some people are also projecting this acute emergency onto Lightyear (a Dutch company designing solar cars, ed.)There’s really no acute situation here with us. It just feels like the next phase. Of course the scenarios have changed and we are also trying to understand where the world is heading. But for now we’re still seeing enough traction. Managing uncertainty has meanwhile proven to be a veritable skill too. Uncertainty requires flexibility and that is what start-ups have in abundance. Both in our organizational and decision making processes. You should be able to accept that you have to make choices quickly on the basis of uncertain data, lack of data or incomplete insight into the consequences of various options.
As a young start-up you have a tremendous advantage in the digital age if you have defined your company’s IT, structure and culture. That’s why a large part of the development is done digitally at Lightyear. Sometimes people are a bit disappointed when they visit us. Instead of a bustling workshop, they find four floors of office workers closed off by large noise-cancelling headsets. Yet this has not only dramatically reduced the entry costs for young companies like us in this industry. For us, it now means that as a full-on digital company, development is in full swing. The software packages required for development are totally cloud-based, as are all the collaborative tools.
Advantages to not having any turnover
For some colleagues, working from home gives them more time to be completely focused. Which means that certain deliverables are handed over even earlier than planned. This is a huge contrast to more established companies. Many manufacturers make it very difficult for their employees to log onto their systems from outside the physical locations. Out of fear of hackers. As a consequence, it’s almost impossible within a short time to make the switch to a system that does work well remotely and securely 100% digitally. These transition processes can sometimes take years. A lot of these companies will have to look for solutions that will still allow for feasible levels of maximum productivity.
At these times, it becomes even more clear what the advantages are of a solid digital IT infrastructure. A friend of mine who works for a technical company mentioned that their VPN was completely overloaded during the initial period. It was almost impossible to access your files. They then let small groups of people work in the office at a distance of 1.5 meters between them.
Lightyear is doing fine
In addition to the loss of productivity, existing manufacturers are also facing a sharp drop in demand and loss of production. Most of them have recently invested a lot of money in new sustainable models. This is bound to hurt a lot. As for Lightyear, it’s not often the case that not generating any revenue turns out to be a key advantage.
From the moment I was forced to work from home, I immediately thought of all the jobs that still had to be done in the house. My racing bike, I’d just replaced the tire. The puzzle with 1000 pieces, or all the books in the bookcase that haven’t been read yet. I even bought 3 more for all that extra free time. Nothing could be further from reality. The days are flying by. Those chores and books are still untouched. Apparently, working remotely isn’t always more efficient after all.
About this column:
In a weekly column, written alternately by Tessie Hartjes, Floris Beemster, Bert Overlack, Mary Fiers, Peter de Kock, Eveline van Zeeland, Lucien Engelen, Jan Wouters, Katleen Gabriels and Auke Hoekstra, Innovation Origins tries to figure out what the future will look like. These columnists, occasionally joined by guest bloggers, are all working in their own way on solutions to the problems of our time. So that tomorrow is good. Here are all the previous articles.