Reflecting on my work with entrepreneurs over the past 15 years, as an investor, advisor, and now an entrepreneur, the most successful companies I’ve encountered have been able to handle adjustments to their business model or industry. Not to say there isn’t value in committing to an organizational vision—sticking to a plan and executing day-after-day requires strong mental fortitude. But when an internal or external shock occurs, the best organizations summon a nimble and decisive mindset to adapt to the new status quo.

When a shock occurs, the best organizations summon a nimble and decisive mindset to adapt to the new status quo. Tweet This Quote

This article is inspired by an Unreasonable alum currently dealing with substantial currency devaluation in an otherwise healthy and profitable business in Sub-Saharan Africa. The most important factor in thriving through this type of adverse event actually develops years earlier—building a strong culture proves as valuable as any capital structure modifications or cost savings.

Build a Strong Culture

Business improvement books and articles increasingly focus on corporate culture—Harvard Business Review suggests it may account for 20-30% of the differential in corporate performance when compared with “culturally unremarkable” competitors. A recent article even mentioned that in a meeting with the leaders of a Fortune 500 company, the word “culture” came up 27 times in 90 minutes. Is culture about ping-pong tables, long work hours, or key principles that are highlighted in public places around the office?

A young company needs a culture that embraces a ‘whatever it takes’ approach. Tweet This Quote

Probably, but it’s more than that. Even if it’s profitable with several million in revenue, a young company needs a culture that embraces a “whatever it takes” approach, instead of only focusing on growth or innovation. Sometimes “whatever it takes” does mean growth, but the value in that approach resides in the flexibility to adapt to different situations and the team coming together around the central idea of helping the company to manage through an event like currency devaluation.

The management team must take the lead in building their organization’s strong culture. Take the time to ensure employees feel connected to the broader organization’s goal. Create tangible goals for individuals and departments to achieve, and communicate actively about how they are contributing to the group’s success. In fact, over-communicate this information—make sure no one is left in the dark. While culture will provide organizational strength after an adverse event, the management team should then shift their focus to the capital structure and potential cost savings opportunities.

Reset the Capital Structure

Managing a company’s capital structure is the first step after an adverse event occurs. Typically after a capital raise, a young organization may have 12-18 months of cash runway available to execute its strategy before the next capital raise. Following an event like currency devaluation, management should reset that clock—find a way to show the internal team and external community 12 months of stabilized financial performance in the new market conditions.

If you experience a shock, rebuild the financial model to reflect the new reality. Tweet This Quote

That may mean slower growth or declines in financial performance. This is fine. Rebuild the financial model to reflect the new reality. Flat or decreased financial performance during this time may still lead to long-term stability and increasing investor valuations, as everyone will appreciate management’s ability to navigate through the adverse event. If necessary and available, utilize debt or financings from existing investors to bridge this period.

Once the current capital structure is understood, shift the focus to the organizational structure and cost savings opportunities. Together, they achieve a balance to give the company those 12 months of stabilized financial performance.

Balance Cost Savings

Balancing the organization’s spending can be especially challenging during this period, as the organization’s culture may have been historically oriented towards growth or something other than a whatever it takes approach. In the face of a currency devaluation that results in management taking a closer look at spending, I suggest frequent, open discussions with each department head about their group’s functions. Some will be critical day-to-day operations, while others will be focused on future growth or upside, in the short-term and mid-term.

All of this applies equally to team projects as well as team staffing. When headcount reductions are required, prioritizing short-term needs vs. mid-term plans at the department level is almost always a better pathway than a blanket “10% staff reduction across all departments.”

The most important factor in thriving through future shocks is taking the time to build a strong culture. Tweet This Quote

These thoughts oriented around currency devaluation are easier to write about than to execute. But having a strong corporate culture will provide most organizations with the foundation to survive adverse events, and subsequently manage through capital structure changes and cost savings as needed.

Please use the comments section to introduce your company’s adverse events, and I’ll monitor in hopes of providing suggestions to help all entrepreneurs facing different types of shocks.

Ashok Reddy

Author Ashok Reddy

Ashok is a founding partner at Unreasonable Capital—a fund that invests in entrepreneurs solving social and environmental challenges in emerging markets—and has executed more than $2.5 billion in transactions during a career that has included 10 years of private equity investing.

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