If you’re a founder building a business during these uncertain times, you probably have one question on your mind: How will we get through this recession? While no one can predict the future, we can reflect on the lessons we’ve learned from past downturns to help founders navigate their path forward for the long term. We recently gathered three founders and CEOs from our portfolio to share how they survived and grew their company during the 2008 Recession.
In this conversation, Jeff Lawson, CEO and co-founder of Twilio, Tobi Lütke, CEO and founder of Shopify, and Ben Silbermann, CEO and co-founder of Pinterest, talked about grappling with the difficulties of weathering an economic downturn and all the while staying customer-centric. Together they offered several leadership principles and founding values that still drive their companies today. We hope their entrepreneurial wisdom and these seven key insights shared here can be a source of motivation and guidance as many entrepreneurs might feel as though they are leading their teams through foggy territory.
Early disappointments can lead you to long term guiding principles.
Jeff Lawson and his co-founders started Twilio in the beginning of 2008. They spent that spring building a prototype, working with developers and getting feedback on the early iterations that would one day become Twilio’s communication-as-a-service products.
“Summer rolled around and our plan was to raise money, and we couldn’t raise a dime. Our company literally didn’t have a bank account yet because we didn’t have any money to put into it,” Jeff recalled. “Eventually, we had one prominent, early-stage Silicon Valley investor; we had the plans to present to the partnership, which is mostly a formality, but that was the night before Lehman Brothers shuttered its doors. We walked in that meeting and the investor told us, ‘Sorry guys. We’re not investing now.’” Jeff and his co-founders were devastated. They couldn’t raise funding, smart investors didn’t understand Twilio’s value prop, and they nearly gave up on the business.
"Our customers were telling us we were on the right track," said Jeff.
But here’s what inspired Twilio to keep pushing: “Our customers were telling us we're on the right track,” remembered Jeff. “We should be listening to customers. And if we're right about that, then obviously the investor thing will work itself out.
“No matter where you're at as a company, focusing on your customers is the right path. Of course, it's not everything,” said Jeff. “In 2008, there was a lot of luck involved, but we continue to follow that early lesson today.”
Strong conviction and extreme diligence can lead you to creative solutions.
After landing and working his dream job at Google, Ben Silbermann had the conviction to build something to call his own. “When the iPhone came out, it was a pivotal moment in my life; I remember watching Steve Jobs on QuickTime. This is amazing, I thought. So I decided to build a shopping app for the iPhone. There were all these catalogs building up in my mailbox and I thought, if somebody builds an app for that, it’s going to work.”
As it turned out, Ben’s idea was early for the market; really good mobile developers were mainly building gaming apps, so they needed to raise money. “Like Jeff, it was a tough time to raise and we were pretty darn shameless. We pitched everybody, alumni directories, and people that had never done tech investments. We did that for almost a year and we finally got our break because we started entering business school competitions because they had cash prizes. We ended up getting second place in NYU’s, and the prize was a meeting with a venture capitalist. He told us that he’d put in the first $250,000, but only if we could line up others,” Ben shared. (As it turned out, Ben sold about a third of the company for that first half million.)
"It was a tough time to raise and we were pretty darn shameless," said Ben.
“We were really maniacal about tracking every single person we ever pitched who then promised us a $5,000 check, $10,000 checks. We went back to them all and were like, the deal's moving. We've got this famous venture capitalist. Are you in? Are you out?"
“Looking back, if we had not been super maniacal about the followup and keeping all of those contacts warm, we would never have been able to call on those folks. And had we not been able to get those other folks on board, we wouldn't have been able to get the other half there,” said Ben.
Prioritizing the fundamentals of your product drives extreme focus on your mission and value for your customers.
Based in Ottawa, Canada, Shopify was founded in 2006, so by 2008 the company had around nine employees with enough revenue to cover expenses. Just before the collapse of the stock market, Tobi considered raising venture dollars in Silicon Valley to fuel growth, but put the kibosh on that once Sequoia cancelled their meeting with the infamous RIP deck.
“A major disruption is like shaking a tree and seeing what fruit falls off," said Tobi.
At that point, Tobi shifted Shopify into survival mode during those stressful times and focused on the mission of their business—to help entrepreneurs drive revenue.
“None of our customers were going out of business because they had Shopify. It was a well designed, affordable online store. In fact, a lot of people actually ended up selling online to get a second income stream,” Tobi said. “A major disruption, [like the ‘08 Recession or a global pandemic] is sort of like shaking a tree and seeing what fruit fall off.”
Everything Shopify did and built had to be tightly connected to the fundamentals of our business proposition, Tobi explained.
“In an economic downturn, there’s a lot of people who presumably might have lost their job and might actually want to engage in entrepreneurship. At Shopify, we ended up building everything we could to make it easier to start a new business, and that ended up becoming very meaningful for our customers. It even reaffirmed our mission, and it's carried us all the way through.”
Pursue the insight, process, or curiosity that keeps you inspired.
Pinterest started out of boredom as Ben and his co-founders waited for their original business, Tote, to be approved by the app store.
“I had another idea for a product that was web-based, and I started working on it with my co-founders. Honestly, we started Pinterest as a joy while we were in this seemingly sinking ship. It felt like this iPhone app was never getting approved, and then later, when it was approved, never was really used,” Ben remembered.
“But at some point people started using Pinterest. It was very slow and the numbers were very small, but I was just so incredibly excited that the people that used it really loved it.”
“I vividly remember writing this email to these investors, feeling terrified, that what they originally invested in was not what we were building. I thought they were going to demand their money back. However, it was actually such a relief because most of them had written the entire investment off. They already just had assumed it would go to zero, and so they were really encouraging when they heard about Pinterest’s early traction.”
Ben echoed Jeff’s emphasis on listening to customers:
“We had an early signal from customers that they loved Pinterest, and just honing in on that signal has served us well.”
It’s why, outside of the circumstances of today with COVID-19, Ben takes a week out of the year to travel and meet with the pinner community. He wants to see first-hand how people use the Pinterest platform that he can’t glean from data, metrics, or interviews.
When it comes to hiring in a recession, don’t oversell the company.
After starting Pinterest in a small apartment in Palo Alto, Ben learned a valuable lessons on recruiting: don’t over sell it. Find the people who are motivated by the problems you are trying to solve.
“There are some people, and they're hard to find, but they're not looking for a guarantee of success,” said Ben. “They're looking for the chance to solve problems and be part of something really on the ground floor. I still cherish those people to this day because they set the tone for what the culture is in the good times and bad times.”
“Embrace the hard things as a screening mechanism,” Ben said.
“I would embrace the hard things as a screening mechanism for who's in this thing for the right reasons,” he continued. “Then, I would embrace your own ambition to build something big. It’s easier to recruit great people by asking for their help as you all set out to solve an incredibly hard problem together, than it is to pretend you’ve got it all figured out. The really great people are too smart to believe that you've got it all figured out, but they're up for being part of a team that's forthright about the challenges.
“Tell people the problems, the good parts and the bad parts, but make it clear that even if you're brand new, you can be part of building something better than it is today.”
Frugality should be a driving value in your company culture.
Many founders wonder whether they can play “offense” or “defense” during the economic downturn.
As Jeff Lawson said, “You should be as bold as your balance sheet allows you to be.” While 18-24 months of runway gives some companies a bit of breathing room, every company is different depending on its industry. Cash management and shoring up financing is a key priority for any CEO, but the founders in this conversation reminded us that venture-deals aren’t the only options.
“Customers are a great way to finance the business, especially in B2B and enterprise settings. If you can get customers to pay you ahead of time to build what they need, that’s the best way to do it,” Jeff said. “There's no dilution. It's not debt, you don't owe the money back, it's called revenue, and it's the best kind of money there is.”
If you’re pre-revenue, an alternative way to finance your business is through a friends and family round: “The people who know you best are actually the best people to turn to, if you're fortunate enough to have a network of folks who are able to,” Jeff said. “It doesn't have to be huge checks. Even small checks can get you started and can build a culture of frugality in the company.
Finally, founders must take care of their physical, mental, and emotional health.
“I was thinking back to a lot of my friends whose companies didn't work out,” Ben recalled. “Some ran out of money, some didn’t quite get the product market fit right, but actually a lot of them were because the founders didn't take care of themselves and then they burnt out. Burnout could mean that they lost motivation because they weren't sleeping, or they put themselves into a situation that just wasn't healthy for them and their family.”
“If you're a founder, your ability to build a successful company turns on your ability to take care of yourself and the people that are very important around you,” Ben continued. “We’re experiencing a global health crisis. So taking care of yourself could mean delaying your startup and staying at your job and supporting your family in a way they need it, or doing it at night, etc. People shouldn’t be ashamed of that.
“When I was founding my company, there were all these blog posts about how cool it was to not sleep, and I actually don't think that's cool at all. It’s super reckless with your health and with the people that care for you and with maybe employees that are depending on you.”
During a global crisis, such as the one we’re in today with COVID-19, now more than ever, everyone has to do their part. At Bessemer, we’re proud to have invested and partnered with companies like Pintereest, Shopify, and Twilio. Here are the many resources Tobi, Ben, and Jeff, along with Bessemer are contributing to the frontlines and the entrepreneurial ecosystem:
How We Feel, a non-profit started by Pinterest’s Ben Silbermann is a free app that helps doctors and scientists fighting COVID-19. It was made in collaboration with doctors and scientists from The Harvard School of Public Health, MIT, Cornell, UPenn, Stanford, and more. It was built by volunteers and is owned by a non-profit organization. Learn more and spread the word.
Twilio is partnering with businesses of all sizes to protect essential workers with high-impact training delivered via text message through its stopcovid.co. In addition, Twilio.org is supporting the frontlines by granting $1.5 million for local relief efforts in San Francisco and Denver Metro areas. Read more here.
Shopify is focusing its efforts on supporting small business owners, the heart of their community. Shopify business owners can offer gift cards to their customers, local pickup and delivery to help flatten the curve, and extended services. Plus, Shopify Capital is lending $200 million in small business funding to weather these difficult times. Learn more here.
Bessemer is answering pressing questions from founders amidst the pandemic and its impact on startups and the entrepreneurial ecosystem at bvp.com/covid19. Find the best of our cloud resources for founders and learn more about our investment roadmaps.
To listen to this conversation on the go, check out Cloud Giants, the newest podcast from Bessemer Venture Partners.