The 2020 Tech CEO survey from Gartner was conducted online between December 2019 and February 2020, before a global COVID-19 pandemic was confirmed, with 285 CEOs in North America, Western Europe and Asia/Pacific taking part.
“While the survey found that 43% of tech CEOs were worried about an economic recession impacting their revenue growth in the next 12 months,” said Patrick Stakenas, senior research director at Gartner, “many delayed taking action to prepare for this eventuality.
“As funding and available capital becomes scarcer in the weeks and months ahead, even after the COVID-19 outbreak slows down, tech companies will have to survive off existing customers and cash in the bank while the current market persists.”
In correspondence with the survey, Gartner made two key recommendations for preparing for an unprecedented circumstance such as this:
Measure and calculate burn rate
Firstly, companies must measure burn rate and use this to calculate financial runaway, according to Gartner.
This entails adding salaries, rent, overhead, and all other expenses to gauge gross cash burn, and then adding all payments from customers in order to obtain net cash burn. Calculating these figures reveals total company-wide cost impacts and cash usage.
According to the survey, most CEOs track revenue growth and profitability, yet only a portion take cash burn rate into account.
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“Cash flow is the key measure of success or failure for companies in these current circumstances,” said Stakenas.
“Startup tech CEOs must measure cash flow on a weekly basis. With a ‘worst case’ forecast in hand, they can determine the crunch points and assess the company’s ability to survive COVID-19.”
Determine a survival plan
Secondly, Gartner stressed the importance of coming up with a plan for survival that is suitable for the company’s financial situation.
The research and advisory firm stated that chances of survival for companies with less than three months’ worth of cash runaway are slim. However, those with a cash runaway of three to six months can try to survive by drastically cutting costs, acquiring capital or selling the company.
For companies with over six months’ worth of cash available, meanwhile, there is the possibility of tech CEOs to extend longevity to 18 months by taking immediate action. This could not only ensure survival following the pandemic, but also open up opportunities to further fund the business.
“Companies who have less than 18 months of financial runway must eliminate all possible costs,” said Stakenas. “The reality is that startups strapped for cash will need to run the business very lean to survive.”