We made the difficult yet important decision to lower the cash burn at SafeGraph. The hardest part about the decision was to reduce the size of the SafeGraph team by approximately 25%.
When reducing expenses, there are a lot of easy decisions you can make before facing the tough ones. You negotiate harder on software expenses. You decrease your paid advertising. You cut contractors. But ultimately you need to make some really hard decisions.
You need to cut some high-potential investments.
Even if you cut in all those places, you likely still need to reduce the size of the team (which is the largest expense for most tech companies).
This is really hard. Especially when the people you work with are so incredibly talented and passionate. That is the case with SafeGraph. These are super talented people. People I definitely would love to work with again. They’re great people we hope to hire again. They are genuinely kind, enthusiastic and fun people I care deeply about. They brought their 100% to work every day and now they are being told that they are not going to participate in the next step of the journey.
It is incredibly challenging and I’m fully responsible.
These are people you care about, who gave it their all and now they are being asked to leave. It is really hard. Yes, you meet with each person individually and treat them with dignity. Yes, you give them a good severance. Yes, you help them find new jobs. Yes, you give them support. But it’s still an incredibly tough situation.
Taking your own advice is hard.
As an investor in companies, you get to dole out advice to founders. The cost of the advice is cheap and you don’t have to actually make the hard choices yourself.
For the last six months, I’ve been giving advice to founders that they should conserve their cash. But I was not taking my own advice.
In today’s environment, cash is becoming more and more valuable (and it will be very hard to raise more). Strangely enough, cash tomorrow will be much more valuable than cash today. Usually the opposite is true. Usually cash today is much more valuable than cash tomorrow.
It’s going to be more important than ever to allocate capital efficiently and effectively. So if you have a lot of money in 12-18 months, you are going to have the ability to proactively act on growth opportunities. But you can only do that if you have a lot of cold hard cash on hand.
It is a bit weird because although we are in an inflationary macro environment (where cash is less valuable every day), the tech environment is getting very deflationary. Tech salaries are actually flat. Software costs are going down (much easier to negotiate). And asset prices (for acquisitions) are going way down (cut by 50-70%). So for tech companies, expect expenses to fall in the next 18 months. (note: this is being written in June 2022).
That means that the cost of an “investment” is higher and you need a much higher expected return to make investments in today’s environment. We see it already happening in the Venture Capital world where the rate of capital deployment is slowing down drastically. Since capital isn’t flowing in, the return on every investment a startup makes needs to be much, much higher. That means for any internal investment you are making, it should have either a much higher chance of paying off or a much higher overall return if it does pay off.
So the more you save today, the more you have available for the future. Conserving cash means that you have more ability to go on offense in the future.
If you think cash will be much more valuable in the future, conserve cash today.
As CEO of SafeGraph, I had not been taking my own advice.
It is common to think you are different. And I fell for it. I did not listen to my own advice in Jan, Feb, March, April, and May. Now it is time to listen.
We made this decision even though we had two years of cash in the bank before the cuts. Because in this environment, two years is not enough.
We will do everything to help our former teammates land in even better roles than they’re leaving. They will forever be SafeGraph alums and it’s my personal goal to make sure every SafeGraph alum is highly successful throughout the rest of their careers.
If you’re hiring high-quality talent, please email me at [email protected]. I’d happily serve as a reference for any of the employees impacted by my decision.