ZIRP Graveyard
“Zero interest rate phenomenon” companies are companies that cannot exist without zero-cost money. These companies rely on some combination of:
- Immense amounts of capital to achieve a scale where they might be profitable.
- Large and loose customer budgets that can pay for more vendors than they actually need.
- Quasi-infinite debt to fund bank-like features within the company to augment flawed unit economics. This worked because there would be very little ongoing cost due to low interest rates.
Many of these companies are headed for the ZIRP graveyard, where the reality of moderate interest rates conflicts with the foundational assumptions of these companies.
How to avoid the graveyard
Some companies will be able to build real, profitable business that don’t rely on free money. But many are still fundamentally broken in today’s reality. The common advice from VCs and thought leaders is “get burn under control” and “grow revenue,” but that’s about as useful as a screen door on a submarine.
Here’s the ground-level truth of how companies are fighting for their lives from the world-class operators on Continuum.
Move faster by shrinking the team
What we’ve seen Elon do at Twitter is an example that “reducing team size often increases velocity.” We’re also hearing from many operators that founders are speeding up by getting leaner.
This requires retaining your A+ players. There are two main components to doing this:
1) Compensation.
2) Expectation management.
Compensation
As you shrink the overall team, there should be more budget for refresh grants and cash raises for the best people on your team. Making this change reduces the attractiveness of jumping ship to another company while also signaling how valuable they are to the team.
Expectation management
More startups go under because of a morale crisis before they run out of cash. A mass exodus of key people can force the end of a startup.
There are many triggers, but the main one is when employees realize a company is running out of cash and there’s little chance of another round of funding. Another big trigger is seeing other key people leaving.
To ensure you can both shrink the team to who is truly necessary and retain who is truly necessary, you need to manage the expectations of the people you hope to retain.
Being more transparent can help if there is a path to success. People want to know about how the changes being made affect the company’s outlook. They want to understand that they’re not empowered to move more freely with less bureaucracy. They want to be sold on the righteous fight they’re signing up for in the coming months and years.
It’s important to have advisors who have done this before to help you navigate these tricky waters.
Focus on where you have PMF (your core business)
A phrase that helps us understand where we have PMF is the “white-hot center of demand.” If demand is not white-hot, then it’s not PMF yet.
A blog post from Rahul Vohra (the founder of Superhuman) details how Superhuman built an engine to find PMF. The TL;DR is that repeatedly and ruthlessly focusing on what your most enthusiastic users want can lead you to PMF.
We hear this echoed by many of our Product, Sales, and Marketing operators on Continuum. They advise wiping the table of what you think you know and finding who your best users are (high NPS, big contracts, etc). Build more for them, and sell to people like them.
We also hear that this usually requires dropping products or initiatives that seem promising but aren’t THE most promising thing. Focus is the only way to spend scarce resources to maximize the chance of success.
Get smart by working with Fractional Execs
Most founders are not the first to encounter the issues they’re currently facing. There are many high-level operators and former founders who have battle scars from solving similar problems. And many of them are available fractionally.
These folks make themselves available to help you see around corners and avoid land mines at a fraction of the cost of hiring someone full-time. Often you’d never be able to hire these folks full-time, but hiring them part-time can provide 80% of their value at 20% of the cost.
We’ve seen time and time again that companies who take the advice of the best operators in the world can find the path to success much faster than those that don’t. Working with the best people in a part-time capacity gives your organization superpowers.
Since these engagements are contract and flexible, they’re far faster to spin up and spin down when the time is right. Don’t wait for a full-time hire to dig into your most pressing problems.
Your business is unique
Every startup has a unique situation with a unique set of assets and challenges. The operators on Continuum can help assess your situation and get to work accelerating your company in days instead of months.
Let us know the most pressing problems you’re facing, and we’ll get you connected with the right fractional operator for your needs.
Put out your burning fires today and avoid the ZIRP graveyard.
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