In the last decade, startup culture has grabbed hold of the concept of “growth mindset.”
It’s become intertwined with learning loops and a whole catalogue of learning principles that essentially amounts to the premise that people and companies one day can be very different another day. If they take in new information and adapt positively, that’s the growth mindset, as psychologist Carol Dweck has popularized it.
True or not, that’s the foundation of why an entrepreneur over the last decade might reasonably think they might can grow a tiny idea into a global brand: Learn and adapt, and we’ll be rewarded. That assumption is being rocked right now.
As the longest sustained period of economic growth in modern history comes crumbing down, entrepreneurs are having difficult conversations — and translating this to their teams. It’s suddenly gotten harder to be confident in the cheery notion that your company tomorrow can be so much more valuable than it was yesterday.
But this time of pandemic isn’t a pause. It’s the game. Everything before this was practice for now.
“It’s better to grow and build a company in a recession,” said Jake Hsu, the Baltimore-based serial tech executive who is now CEO of Catalyte, which manages an AI-powered workforce development platform. In any economic shock, people pull together to try solve “4 a.m. problems.” In one as big as what is happening now, the world will go through radical change.
“When you’re hit with new challenging things, how do you react to it?” said Rick Nucci, the cofounder and CEO of Guru, maker of a knowledge management platform. “Is it an opportunity to learn something new and do something about it?”
Maintaining this kind of perspective is difficult in the best of times. How does an entrepreneur maintain a growth mindset during a recession or other economic downturn?
That was the topic of the third episode of The TWIJ Show, a new weekly interview series Technical.ly launched as a complement to our This Week in Jobs newsletter. Fortunately both Hsu and Nucci have led growth companies through recessions of the past, and they’re working through today.
Nucci announced this month its $30 million Series C led by Accel Partners. His 160 employees are split between its Center City Philadelphia headquarters and San Francisco offices, in addition to remote staff. His previous company Boomi was acquired by Dell in November 2010, after thriving during the Great Recession.
Hsu’s Catalyte has raised $55 million and has 700 staff spread across locations in Baltimore, Portland and other hubs. He held tech company leadership roles through both the Great Recession and the Dot Com Bubble.
I spoke to Hsu and Nucci about maintaining a vision of growth while the wider economy is in destruction.
Both Hsu and Nucci both noted that during any economic downturn, a CEO has to remain empathic to staff and the wider world. People lose jobs; your employees could be dealing with a spouse or parent losing an income. Today’s health criss makes this more stressful still.
Nucci said he keeps his goals of giving back to his community and that of growing his company as separate. Be cautious if you find yourself thinking other people’s personal pain will be your gain.
“Not ambulance-chasey,” as Nucci put it, both because it is moral but also because the transparency brought on by the web has made it so much easier to root out inauthenticity.
This also means entrepreneurs need to first make sure their own company’s house is in order. If an economic shock has made your cash-flow deeply vulnerable, you must prioritize that. (First, though, prioritize your own health, and know there are always worst-case scenarios you can handle.)
“If you’re running out of cash, you don’t have the luxury of having a growth mindset, yet.” Hsu said. “You need to find a path through this.”
That could involve raising a round, or pay cuts or layoffs or furloughs, or, depending on your business, adapting what or how you sell. Start with that plan. Then get in the game.
Start with growth fundamentals
To put it simply, Catalyte helps fill technical roles for its clients by staffing itself with people its AI platform predicts can add skills quickly. It’s in the business of identifying people who can grow, so Hsu says Catalyte has a very clear definition of growth mindset.
Hsu said it’s “an individual’s ability to acquire new knowledge and information and apply it to what they’re doing — and grow from it.”
That means as a professional, you need to embrace the change that comes with an economic shock and incorporate those changes quickly. As Nucci put it: “Does quality improve with new information?”
Or do you shrink in light of the storm?
Embrace scenario planning
If every startup is a bet that the world is about to change, entrepreneurs have to be well positioned to weather that change.
As every detailed field guide for navigating crisis will remind you, scenario planning is your tool. Rather an annual budget and quarterly reviews, during the worst of an economic crisis, you could be doing monthly or weekly adaptions to your growth plan. For each, you’ll take a best, middle and worse-case scenario plan.
As the severity of today’s particular shock became clear, Catalyte announced pay cuts, and Guru built an initial financial forecast that included revenue growing half as much as planned this year. Both developed theories about how their products could be more, or less, valuable as the world changes. Might customers churn? Or might they be more valuable? Nucci looked at a three-year cash flow plan, and then began tracking even more closely leading indicators, like how many free accounts the company added.
In each stage of the decision tree, have a mantra that you’re planning to get better as information changes. Across hundreds of scenario plans from three major shocks and other smaller ones, Hsu comforts: “It never was the worst-case scenario.”
Communicate with your team
A growth mindset can’t stay with the CEO alone. A culture of taking in new information and growing has to permeate an organization.
Be open about your financial models with your team and “bring them in on the rollercoaster,” as Nucci put it. Make it OK to think big. During an economic shock, it’s a common reaction for your team to tense up. Rather than growth, many will convert to a fixed mindset, holding on to what was true before. A CEO has to help set the tone for how different your assumptions now must be.
As Hsu gathered more information about this economic shock, he told his staff: “Our ambition should grow.”
That’s not to say growth is always possible during an economic shock. During past recessions at different companies, Hsu has guided his teams to focus on resiliency. That may be the right approach. For this cycle, Hsu is talking about being “antifragile.”
See through the devastation and be the change you want to see, Hsu advises.
“What are the permanent changes?” said Nucci. “What does that mean for our business and how do we serve more customers better?
Nobody has product market fit in the post COVID world. Nobody. You have to relearn everything about the customer no matter the size of your firm.
— Brian Brackeen (@BrianBrackeen) April 20, 2020
Plan for a new reality
All major economic shocks change the direction of markets.
Periods of change can drain creative problem solving, so both recommend CEOs find ways to step away from business to refresh.
“Take a break from work,” said Nucci. “If there’s one thing about startups: They can consume your life.”
Nucci listens to music, and has a wife and two daughters. Jake has four of his own. Getting away allows you to think big about how your business can fit into a new reality. Take information, adapt.
Make something radical mainstream, like the future your business wants to be a part of. As Hsu put it: “This is the time to drive change.”-30-