Biology is a portrayal of business. As Darwin guessed, what can survive is “not the strongest or the smartest, but the most able to adapt to changes in the environment.”

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Editor’s note: Here comes the black swan. The health crisis of the new crown virus not only threatens human health, but also poses a great threat to the survival of enterprises. There has been a lot of guidance on how to prevent personal health, but how can corporate health be maintained? Sequoia Capital, a well-known venture capital institution that has experienced every Black Swan incident for nearly 50 years, recently sent a letter to the founders and CEOs of investment startups, providing their own experience and suggestions, calling on them to take precautions and turn the crisis. For the machine. This article was originally published on Medium with the title: Coronavirus: The Black Swan of 2020

Sequoia Capital: How can entrepreneurs turn to crisis under the influence of the

This is a letter we sent to the founder of Sequoia Capital today people and CEO, we hope that we can help to ensure the health of the business while coping with the spread of coronavirus Provide guidance on potential commercial consequences of the effects.

Dear founders and CEOs:

The coronavirus is the black swan of 2020. Some of you (and us) have been affected by this virus. We understand the pressure you are under and we are willing to help you. Given the threat to life, we hope that things will improve as soon as possible. In the meantime, we should be prepared for turbulence and be prepared for possible situations.

Everyone has been overwhelmed by suggestions on how to prevent COVID-19 and protect the health and well-being of individuals, families and employees. Like many people, we have researched the information we have, and we are happy to share our views-please let us know if you are interested. But the letter is about another thing: ensuring the health of your business, and responding to the potential business consequences of the impact of virus transmission.

Unfortunately, because Sequoia has operations in many parts of the world, we also have first-hand information about the impact of coronavirus on our global business. Like all crises, some companiesWill also benefit from it. However, due to the virus outbreak, companies in many countries on the frontline will face challenges, including:

Decrease in business activity . Between December last year and February this year, the growth rates of some companies have fallen sharply. With the spread of the virus, some companies that are already on the right track may not be able to achieve the 2020 Q1 target.

Supply chain disruption . The unprecedented measures China has taken to control the epidemic are directly affecting global supply chains. Hardware vendors, DTC brands, and retail companies may all have to find alternative suppliers. Pure software companies may be less affected by supply chain disruptions, but risks remain due to the cascading economic effects.

Travel reduced, meeting cancelled . Many companies prohibit all “unnecessary” travel, and some companies prohibit all international travel. Although travel companies will be directly affected, all companies that rely on face-to-face sales, business development or negotiation of cooperation will also be affected.

It will take a considerable amount of time (perhaps several quarters) to determine that the virus has been contained. It will take longer for the global economy to regain its foothold. Some of you may experience weak demand and some may face supply challenges. Although central banks such as the Federal Reserve can lower interest rates, monetary policy may prove to be a blunt instrument in terms of mitigating the economic consequences of the global health crisis.

We recommend that you challenge all assumptions about your business, including:

Cash runway . Does your money last as long as you think? If the economy is sluggish, can you survive several underperforming quarters? Have you made an emergency plan? Where can you cut expenses without causing fundamental damage to your business? These questions are being asked now to avoid suffering in the future.

Financing . As in 2001 and 2009, private equity financing may decrease significantly. If financing for 2020 and 2021 proves to be very difficult to get attractive terms, what should you do? Can you turn it into a crisis and prepare for success that will stand the test of time? Many of the most iconic companies have been honed and forged in trouble. Soon after Black Monday in 1987, we formed a partnership with Cisco. Google and PayPal survived the bursting of the Internet bubble. The most recent Airbnb, Square and Stripe were formed during the global financial crisis. Restrictions keep your mind focused and provide fertile ground for creativity.

Sales forecastMeasure . Even if you don’t see any direct or immediate risk exposure in the company, you should also anticipate that customers may change their spending habits. Seemingly secure transactions may not be possible. The key is not to be caught off guard.

Marketing . As sales weaken, you may find that the customer’s life-cycle value has declined, which in turn illustrates the need to control customer acquisition spending so that the return on marketing spend is consistent. As economic and financing uncertainties increase, it may even be necessary to consider raising the standard for return on investment in marketing spending.

Staff size . Taking into account the above-mentioned various financial pressures, it may be time to seriously evaluate whether you can spend a small amount of money to do big things and improve production efficiency.

Capital expenditure . Before deciding on a financially independent approach, check whether capital expenditure planning is wise in a more uncertain environment. There may be no reason to change the plan, and the changing situation may even be the opportunity to accelerate forward. However, these decisions should be well thought out.

In the past 50 years, we have experienced every business downturn. An important lesson we learned from this is that no one will regret making quick and decisive adjustments to the rapidly changing situation . During a recession, income and cash levels always fall faster than expenditures. In a way, biology is a portrayal of business. As Darwin guessed, what can survive is “not the strongest or the smartest, but the most adaptable to the changing environment. ”

One of the distinctive characteristics of developing a lasting company is the way company leaders respond to moments like this . Your employees are aware of COVID-19 and they all want to know how you will react and what it means to them. Wrong optimism can easily lead you astray and prevent you from making emergency plans or taking bold action. It is necessary to be realistic, adaptable, and decisive in order to avoid this trap. Your team needs you to show leadership during these stressful times.

Here are some ideas from our partner Alfred Lin. As the head of operations, he has experienced another black swan moment:

“Before the 2008 financial crisis, I was called to Sequoia to give the non-famous” Rest in Peace, Good Times “speech. At the time, I was COO / CFO of Zappos. We did n’t know that, and at that time we did n’t know how long, how violent or how limited the recession was going to be. But I can be sure that the speech made our groupTeams and businesses have become stronger. Rivals have been hit hard, and Zappos has survived the financial crisis and is ready to seize the opportunities they remain. “

Be healthy and keep your company healthy, and leave your mark on the world.

Good luck,

The Sequoia team

Translator: boxi.