In the last two weeks my inbox has filled with a single phrase: “in these uncertain times.”
Most of those are emails from venture capitalists and private equity firms following up to provide stability as we know we are falling quickly into a recession. The emails were quickly archived, but they have a point: these are uncertain times and it’s hard to know how to react.
Should you cut expenses, scale back, and weather the storm? Or should you push harder and more aggressively to get your family and company through this time?
At ConvertKit we immediately made three changes:
- We launched The Creator Fund to give provide grants to those who were affected by everything being closed and canceled by the pandemic. The $50,000 we pledged immediately grew to over $160,000.
- We launched a daily podcast called The Future Belongs to Creators to provide a steady voice through the quarantine and encourage everyone to turn uncertainty into creative output.
- And finally, for the next 6 weeks we increased the limit on our free plan to up to 500 subscribers to give all these new creators plenty of headroom to grow their new ventures for free.
That last change is a big deal for us. We earn over $300,000 per month from customers who have less than 500 subscribers and could switch to the free plan. If that happened our profits would evaporate and we’d go into the red for the first time.
As such our team was understandably nervous about making such a bold change. This is the post I shared with them, and as you are likely facing similar challenges in your business, I thought I’d share it with you as well.
Not everyone will have this level of preparation and privilege, but I hope this peek into how we think and operate gives you a small advantage in your own journey.
My message to the ConvertKit team
First, I want to kick it off by saying how proud I am of the team for pulling this change together quickly. Sometimes we fall into the trap of debating things endlessly and spending weeks to make a decision and then follow a long process.
As Barrett said, we are asking you all to trust us to lead through this time. Let me share a little backstory to add more color to that.
A little history
Back in 2008 I was running a freelance web design business and having a fantastic year. In November I had booked my best month of revenue ever ($14,000) and was just about to head out for a 5 week church mission trip to South Africa with Hilary, with a ton more clients lined up to start projects in January when I returned.
Except when I came back 100% of those projects canceled. The recession had hit all of my clients businesses and they stopped spending money. Unsure what to do—and with a wedding to pay for in 5 months—I took a full-time job with the only client I had left.
Instinctively I knew that the recession wasn’t bad for everyone. For those who had money and were prepared it was a great time to start businesses, buy real estate, and invest in the market. Those people made a ton of money through buying low.
Watching that happen I made a promise to myself: for the next recession I will be in a position to invest and profit from the downturn, rather than being crushed by it.
The day has arrived
I kept that promise.
There were three things I knew we needed to have in place in order to weather the storm and grow through it:
- A large cash balance
- An established free plan
- The right mindset
Let’s talk through each of these.
1. A large cash balance
I just signed into our bank account and took this screenshot:
Today we have $5.6 million in the bank. From an accounting perspective it gets divided into many different buckets, but at face value this is how much money we have accessible right now. And that’s after paying out our largest profit sharing bonuses ever!
We also have a line of credit for an additional $350,000 (which seemed like a lot back when we secured it).
In addition to that we have monthly profit of over $100,000! So before we dip into savings we would need to:
- Lose our net new MRR (average of $30k the last couple months)
- AND have MRR drop by $100k+
And then we would find some extra expenses to cut, before we start to dip into savings. We are in a very, very secure financial position.
2. An established free plan
At the beginning of 2019 I told Barrett that I wanted to have a free plan launched before the next recession hit. The hypothesis being that in a downturn people would start side-hustles and be very cost conscious. With a free plan we could get all of that new business with us in the downturn, then grow with them as the economy turns around.
It also protects our downside since, as Adam explained earlier in the thread:
Anyone who goes paid->free with us likely would have just moved to Mailchimp if we didn’t have the free plan. They’re still on the platform and more likely to turn back into revenue in the future.
We fulfilled that part of the plan in January and released a free plan before the next recession. We knew it was coming, I just didn’t expect to be within 8-10 weeks of the downturn!
3. The right mindset
The final step to prepare was to make sure as a team we had the right mindset and preparation. We addressed that through all team discussions in November on weathering the inevitable economic downturn [This was a link to a past Basecamp discussion].
We told you it’s coming. We talked through it. We shared our plans for making the most of it.
- Made our product far more useful for the price by adding landing pages (the value of 2 tools for the price of 1)
- Hardened our infrastructure to have solid stability and uptime
- Improved our customer support for faster responses with better quality
- Built a very cost-effective system for answering support tickets at volume
What I didn’t expect
Now is one major aspect of this recession I didn’t expect: the pandemic.
Rather than being driven by a natural decline in markets or shady financial dealings this one is being driven by a once a century pandemic. Which includes hundreds of millions of people being forced indoors and the entire economy shutting down or moving online.
In addition to already being a remote company, we are perfectly positioned to serve this new dynamic. Web traffic is up all across the board, email sending is up, email subscriptions are up, and our customers are getting more attention than ever.
A recession could have been triggered by anything, but in this case it was triggered by something we are well positioned for.
Thrive, not survive
Now with all of this preparation I want to make one thing very clear: my goal is not to survive this recession. It’s to thrive in it.
It won’t be easy, but I’m hard pressed to think of more things we could have done to better prepare. So to thrive it means we need to take move quickly and take aggressive steps towards our long-term vision.
I think of it like surfing. Those of you who surfed right outside the condos on our beach day of the retreat will know exactly what I’m talking about.
As I stood there in knee-deep water and watched the giant wave roll in, I got more scared as I realized that it was towering far above my head and about to break aggressively on top of me. I had two options:
- Cower and get absolutely hammered
- Dive straight into the wave and swim like hell to get through the set
This wave is coming. We’re all going to get wet. So which are you going to do?
There are two things I can guarantee:
- This isn’t just one wave. It’s a whole set that will continue to pound companies as the pandemic gets worse, more cities go into lock-down, and even more sectors of the economy will close completely. This set of waves is going to hurt like hell if you’re passive and stuck in the wrong spot.
- There will be people who prepared, timed it well, paddled like hell, and are now surfing each wave as they come in.
Moments like this are when you build the company.
I have spent 11 years preparing for this moment.
Let’s take care of ourselves and our families.
Let’s take care of our customers and our community.
Then let’s fucking go.