Webcast: Communicating with your investors is key in a crisis
Communicating with your investors is key in a crisis
Once upon a time… we didn’t think to tell our investors about some changes we made to Canaree’s model. We thought they didn’t matter, but oh were we wrong.
Keeping your investors in the loop about the goings on, however seemingly trivial, is an essential for maintaining strong relationships with them.
Your business is driven by the story you tell, and therefore it’s a prerequisite that key stakeholders are clued up on that narrative - and all subsequent iterations! A seemingly small change can have a huge impact on the eventual actuals, so maintain a dialogue.
That communication becomes even more critical in times of instability. Right now, all people and businesses are wading through uncharted waters and the future looks uncertain. Now more than ever, opening up a conversation about wider problems and the inevitable changes that they’re going to have is an essential.
We hope to shed some light on the situation from a financial perspective and hopefully settle some nerves about the precarious situation we all face right now.
“Remember, it’s the story that you’re
telling investors and board members.
If some of the drivers of the story change,
then you’ve got to communicate that.”
Sara: One of the other discussions we’ve had in our team or in our board and co-founders is, the assumptions change, and every time they change we also update the model because it gets better.
Can you maybe talk about the process that we’ve been through in Canaree and how we’ve probably made some mistakes and not been good enough at communicating? Can you elaborate a little on that?
Andre: It does come back to being approximately right rather than precisely wrong, right?
I think we were, you and I, revisiting some of the core drivers of the revenue side of the model and we made some fundamental changes about targeting different sectors - we had ideas about not just targeting startups, but we had some potential leads with partners or accelerators - and so we revised the modelling to include that.
It hadn’t occurred to us - well, it didn’t occur to me - that it was a big change.
So, when we talked about it with the board, they were not happy.
They said ‘this is a big change and you didn’t notify us about it’, but in our minds it was just that we’d revisited one of the drivers of the model and we’d simply changed it. You need to take a step back sometimes.
Remember, it’s the story that you’re telling to investors and board members, and if some of the drivers or some of the outline elements of the story change then you’ve got to communicate that - and we didn’t do that well enough.
“Canaree, ultimately, is not just going to be for startups and early stage businesses”
Sara: No. Well I think... no, not well enough. We did have a discussion about the assumptions changing and we learned from the market what was possible and what was not possible, but we didn’t really put the numbers in front of them.
I love that we’re building this product because I constantly say to the product team, ‘I would really love to have this feature...’ and so now we’re also building up to export so I can just print out a pdf and put that in front of my board members when I have a board meeting. So, we’re constantly feeding in our own experiences and getting better which is kinda interesting.
Andre: You know, Canaree, ultimately it’s not just going to be for startups and early stage businesses.
I mean, you look at any large company. They’ve got to analyse different projects, you’ve got to know ‘is this a good company for us to buy?’ or ‘should I invest in this project?’.
There’s a really good case study of how Disney planned their expansion into South America - and there’s no difference in the way that someone goes about creating that model and then determining whether it’s good value for money.
“I think this would really empower not only entrepreneurs, but anyone who wants to make an investment, or
change a business model or
explore something new.”
Sara: Yeah, and you don’t have to be a finance genius to do that now.
That’s the whole point of Canaree, right. I never thought I would build a financial model, because I don’t have a finance background. And I think my maths teacher thought I was dropped on the floor as a baby!
But everything I know about finance is what I’ve learned by doing, and building a business and realising how powerful it can be.
But that doesn’t mean I love numbers as such. I think this would really empower not only entrepreneurs, as you say, but anyone who wants to make an investment or change a business model or explore something new in that regard can really be empowered in that way, and I think that’s the exciting part.
So, my last question is that a lot of people right now, especially startups, are revising their models because of the crisis and are trying to find ways to extend their runway and cut costs. It’s more survival mode than growth mode, is my take on conversations that I’m part of.
How would you go about presenting or communicating those changes in a model, either to your current investors and board or even potential investors as well?
“It’s having the model with you, it’s
knowing what the assumptions are, and it’s
discussing it with the board or potential investors.”
Andre: Yeah, I mean everyone is aware of what's going on in the market right now. Again, it comes back to assumptions.
I didn’t mention it before, but you don’t need a hundred assumptions in a model. Eight, ten, that’s really what you need to come up with something you can discuss.
If you’ve noticed that the growth of the economy is now at what, -4%, those sorts of things are obviously gonna have an impact on everyone and on every business. So, you can reflect that in your modelling and then you can have a discussion about those new assumptions.
If you do tweak those assumptions in the model then it will have an impact on your runway. So then you can have another discussion about, ‘okay, so the runway’s been constrained by three months, so we need to make this and this change, or we can’t launch in time.
But again, it’s a conversation. It’s having the model with you, it’s knowing what the assumptions are, and it’s discussing it with the board or potential investors.
Sara: Yeah, that’s also what we’ve done. It was frustrating when everything shut down and we didn’t know what was going to happen, but after a few weeks we said, ‘okay well, this is now our plan and now we have another opportunity to dive deep into making the product even better than we would have had time to before.
Obviously, we have really supportive investors on board that are helping us get to that point, so saying that our fundraising has been pushed but there’s also an opportunity in that. And that’s what I've been communicating in my conversations and I think that’s been taken well.
The bottom line is that whatever is going on, crisis or no crisis, having a clear communication track with your stakeholders will help you to deal with adversity and also help you to recognise any positives that can be derived from the current adversity. A revision in your model isn’t the end of the world, and being able to communicate that you have a plan for how to handle the changes will fill your investors with more confidence than if you become absorbed by the problems and come to them for crisis management.
Liked this post? Then you might like this one too: have a read if you want to scrub up on the basics.
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