Facing tight cash and a looming recession in early 2023, Mads Jensen sets out a why-what-how framework for B2B SaaS founders to plan cost cuts with their board, from realigning on strategy to implementing and communicating the plan.
- Begin by realigning with the board on strategic intent, the immediate mission and realistic growth assumptions, because nothing else makes sense without agreed objectives.
- Be clear whether the plan aims for break-even or a funding milestone, and how much runway that requires.
- Lay out the options, typically variants of selling more and spending less, with trade-offs, a recommendation, risks and the resulting revenue, burn and cash-out date.
- Plan implementation in detail, including headcount and salary spend per department before and after, how to communicate with those leaving and how to motivate those staying.
- Acting sooner buys more runway for the team to achieve its objectives.
How can B2B SaaS founders plan for cuts?
(possibly applies to others as well)
2023 is going to be a tricky year in startup land. Cash is tight, and recession is looming. And most startups need to tighten their belts.
When times are good, and the sky is the limit, we can all get exuberant. Then the laws of physics are reintroduced, and gravity reasserts itself.
Maybe you’ve overhired. Maybe your customers are pausing their spending for a bit. And suddenly, burn races far ahead, and the runway shortens dramatically.
A useful framework
Many founders took action and trimmed in 2022. But some still have it all to do. So here are some suggestions on how to work with your board and investors to get it done:
- Start with why:
- Yes – you may need to cut to survive. But you need a wider strategic lens than making it to another day. So start by realigning you and your board on your strategic intent. Remind yourself and others what you are in this world to do. Then zero in on the immediate mission and objectives? Maybe it is about landing specific lighthouse accounts? Or proving the expand part of your upsell motion? Make sure to put some realistic growth assumptions in your plan. If you don’t agree on the objectives up front, nothing else in the discussion will make sense.
- Be clear on whether the plan is to make it to break even or to make it to a funding milestone. How much runway do you need to get to this milestone?
- Then what:
- What are your options (typically variants of “sell more” and “spend less”)?
- What are the implications and trade-offs (analyse each option with pros and cons. Make sure to cover trade-offs)?
- What is your recommendation (have a proposed plan. But don’t be too wedded, or you risk looking intransigent)?
- What are the most difficult aspects of implementing your recommendation (that’s the risk piece)?
- What are the expected monthly revenue, cash burn and cash-out date of your new plan?
- Finally how:
- How do you propose to implement your plan? What are the headcount and salary spend per department before and after the cuts? How will you communicate the plan to those who sadly have to leave? How will you energize those you want and need to keep?
- How do you address the major risk aspects (team, customers, product/tech)?
The importance of getting it done
Building a company is an incredible journey, full of ups and downs. Restructuring and cuts is one of entrepreneurship’s hardest and most unpleasant aspects. But sometimes, it has to be done. And as founder/CEO, it is your job to do it.
It takes a lot of different skills and tools to build a successful SaaS company. Knowing when and how to trim the sails is an important one for your kit bag.
In startup land, time is always of the essence. And the sooner you get it done, the more runway you buy yourself and your team to achieve your objectives.
And as long as you keep your mission aspirational and objectives clear, your team and your board will be motivated to follow you.
Because that is what you want and need. A motivated team, the backing of your board/investors and the necessary runway to meet your objectives and the mission for your company.
Frequently Asked Questions
How should a startup founder present cost cuts to their board?
Start with why, by realigning on strategic intent and objectives. Then cover what: the options, trade-offs, a recommendation, implementation risks and the new revenue, burn and cash-out date. Finally cover how the plan will be implemented and its risks addressed.
Should a cuts plan aim for break-even or the next funding round?
The post says founders must be clear which it is, and how much runway is needed to reach that milestone.
Why is timing important when making cuts?
In startups time is always of the essence, and the sooner the cuts are made, the more runway the founder buys for the team to achieve its objectives.