I’ve received a lot of communication from founders about the impact of the recent epidemic on their business – some informative, some lackluster. Based on what I’ve seen, I created a rather simple framework to help founders communicate the key pieces of information that an investor (current or prospective) would want to hear.
I call it the Four Deltas.
The first two Deltas are the impact of the market on your business (outside of your control) in the short and long run. The second two Deltas are the impact of your actions on your business.
The First Delta (Δ₁) you need to communicate is the immediate impact of the current environment on your business – either positive or negative. This should start with hard numbers that can be measured. For example, you could start by looking at global (or local) changes in consumer spending specific to your industry, and then highlight the changes in your own KPIs. Each of these Deltas is multifaceted, and an important exercise is considering what few key numbers are most important to an investor.
The Second Delta (Δ₂) is the expected bounce back as things open up and return to “normal”. This is your opportunity to communicate your expectations around the future market dynamics of your business, including how long you expect this to last (should be a range), and relevant behavior changes that you expect will stick. Investors are thinking especially hard about the Δ₂ of business that are seeing sudden growth. For example, the Δ₂ of toilet paper should be equal to Δ₁ – meaning people will buy the eventually buy it at the same rate as they did before. For many industries, the Δ₂ is debated, such as for travel (will people travel the same as they did before?) and remote work (will people go back to the office?). I like Fred Wilson’s suggested baseline of expecting Δ₂ to be 50% of Δ₁ (article). Communicate to your investor your viewpoints on the Δ₂ of your business.
The Third Delta (Δ₃) is the impact of your actions on Δ₁. If your Δ₁ is positive, what are you doing to take advantage of the sudden growth? Considerations around this include the robustness of your infrastructure to handle growth, managing increased burn with fundraising expectations, and sensitivity in communicating positive news. If your Δ₁ is negative, what are you doing to survive? This should include everything from your cost cutting efforts to your fundraising plans. Don’t forget – people are here to help, don’t hesitate to ask for help.
The Forth Delta (Δ₄) is the impact of your actions on Δ₂. This is an opportunity to communicate your ability to strategize for the long-term. If your Δ₁ is positive, you want to communicate to investors how you are planning for the inevitable bounce back, and what you are implementing to minimize this – such as measuring and improving stickiness of your product. If your Δ₁ is negative, this may not be as important – people just want to know you’ll survive – but this is a great opportunity to paint a picture of what you’re doing today, to be one of the few survivors that sees an explosion in growth as things open back up.
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Take a moment to review how you’ve communicated to your investors thus far and make sure you’ve touched on each of these. This is your opportunity to show investors your thoughtfulness as a founder.
If you liked this, maybe follow me on Twitter @yoheinakajima.
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