What makes a startup resilient in crisis (Like COVID-19)
By: Eric Kish
Tags: Covid 19 Crisis, Startup Lessons, Resilience

This is the story of a startup that found itself prepared to navigate the COVID-19 crisis without even knowing it.

Nanoramic Labs is a mid-stage startup based in Boston, MA. Among other things, it claims a breakthrough in energy storage technology that could reduce by 20% the cost of a KWh in a Li-ion battery. Nanoramic’s main operations consist of lab work to experiment with nanomaterials and small scale manufacturing to prove that its technologies are scalable.

Nanoramic, previously known as FastCAP Systems Corp, is not new to crisis. Ironically, the company started with funding that was the result of government stimulus during The Great Recession of 2008.

FastCAP faced its first crisis in 2014 when the oil price crashed. At the time, the company focused exclusively on oil drilling technology. Therefore, it was completely exposed to oil price cycles. During that crisis, FastCAP went through a painful reorganization, the results of which made possible the level of crisis readiness it has today.

A wake up call

Conventional wisdom usually describes startups as nimble and ready to pivot to reach product market fit as soon as possible. One would have expected FastCAP to pivot quickly, appealing to different market segments as their core technology was not specific to oil drilling. But this did not happen. In the following two years, their CEO made no effort to pivot and the company ran out of cash.

This was a complete shock for employees as they were furloughed overnight. There were clues that the company was on the rocks but employees were mislead about why the company had missed payroll on multiple occasions. The lack of transparency and corporate governance made the dire financial situation unknown to employees and even senior managers. Eventually, the CEO was shown the door and a group of senior executives took the lead to convince shareholders the company was worth saving. It took a very painful 9 months to raise a bridge round to make a restart possible. They eventually convinced one shareholder and their major lender to step up and support them in turning the business around. As a pre-condition for support, they requested the hire of a new CEO. That’s when I was hired.

When I came in I was lucky. On the positive side, there was a sense of urgency in the core team and a strong belief in its technical capabilities. The organization rallied around the CTO and the IP council as they navigated the storm. They were able to preserve the knowledge through a team of loyal employees that stayed with the company despite the hardships. Also, in the bridge round, employees were given substantial stock in the company to create the right incentive.

On the negative side, the company had no revenue and a heavy balance sheet with more than $10m debt at very high interest. And a lot of skeletons in the closet.

It is hard to explain how the company operated before. I am quoting here an employee that lived through it and is still with the company today.

It was a culture of secrecy, there was no trust in the employees or encouragement of new ideas. Aside from secrecy about the business, there was a culture of paranoia and secrecy around communicating our achievements or projects with the outside world. All work happened in the office and there was no work from home allowed for any function. We were tied to working in the office by complex server systems, paper files, and on-premise storage of documents. People were shamed for leaving at 5pm …

The Key to Resilience

You cannot predict the future, let alone control it. The only thing under your control is building adaptive capacity in your organization.

Here is an article describing the concept of Adaptive Capacity

First Things First: An Infrastructure to Enable Adaptive Capacity

Cloud

Before anything, I wanted to make information available to anybody in the company. One should find any information they need in less than 60 seconds from anywhere. This was my way of making sure we have good data and transparency.

Previously, all data was stored on one server in the company office. All accounting data was on one computer used by the CFO in his office.

I decided to move EVERYTHING to the cloud in 90 days. By sheer coincidence, the server were all the technical files were stored crashed and all data was lost. It was the equivalent of Cortez burning his ships before conquering the Aztec Empire. We had to start fresh, so why not all in the cloud? Very quickly, we realized our CFO was not up to the challenge. We let him go and had accounting in the cloud in 30 days.

Since 2005, I had transformed companies to work remotely. I was well versed in virtual work across many time zones. I saw first hand what can be achieved in terms of agility and productivity if you know how to do it. I had a strong background in cloud based technologies. But this was not to be a copy-paste exercise. Nanoramic is a hardware business. My previous experience with remote work was with software companies. We had to experiment, fail fast and adapt.

Quality of Sound

In my 10 years of leading remote organizations I learned that quality of sound is the most important productivity factor in remote communication.

At Nanoramic, some of the things I faced could not have been anticipated. I discovered that our office is very noisy and very expensive to sound proof. We could not make normal audio conferencing equipment work to achieve a reasonable sound quality.

We had to improvise…In a previous life I had my own rock band and a passion for band touring and studio gear. After a couple of failed attempts with regular video conferencing equipment, I turned to stage audio solutions. We ended up with gooseneck microphones in meeting rooms and a digital mixer featuring auto-mixing.

Improvised audio setup for video conferencing. See mixer rack on the right and gooseneck mikes on the table

We also purchased noise canceling wireless headsets for each desk. The standard desk would have a headset and 3 monitors.

Standard setup for a desk

The objective was to have anybody able to organize and/or join a video conference remote or from a meeting room with exceptionally good sound.

Pretty soon we decided to buy equipment to take home or on the road for people who would regularly join remote.

Real Time Collaboration Tools

The next thing required for distributed work are real time collaboration tools. We decided on Slack for fast tactical communication, JIRA for activity planning and tracking, Confluence for content creation and sharing, and Box and Dropbox for document storage. We eventually ended up with more than 50 apps in the cloud to support this remote collaboration way of working.

This is a short list of the most used apps today

Google Apps

Slack

JIRA

Confluence

Dropbox

Box.com

odoo

Bill.com

Expensify

ScreenCloud

Wix

Pingboard

Zoom

Geekbot

Lucidchart

Frame.io

Breezy.hr

ApprovalMax

Zenefits

OfficeVibe

SignNow

Office365

Voltaiq

Disciplined Rituals

It is difficult to make a bunch of people with different schedules, time zones, and interests effectively collaborate in a virtual environment. It all starts with time awareness ( See here a blog article describing my definition of time awareness).

We have a strict interpretation and enforcement of time awareness rules:

Meetings are scheduled in 50 or 25 minutes slots. We always start on time. We never go over the scheduled time and we prefer to end earlier.

We always describe in the invite why are we meeting and what is the ONE thing we want from that meeting

You are required to RSVP at least 48 hours before the meeting

Every meeting has meeting minutes recorded in Confluence. If it is an external meeting with a customer we post the link of the minute in the CRM chatter for that particular opportunity.

We practice 3 types of rituals:

Situational Awareness rituals make sure everybody knows what is going on around them. We have daily standups, weekly syncs, monthly scorecard huddles and quarterly strategic intent clarification off sites.

Learning and Adaptation rituals allow the organization to continuously learn and adapt to a changing environment. We have retrospectives, education days and black hat planning sessions.

Maintain Readiness rituals keeps the organization ready to act at a moment’s notice by systematically reducing organizational friction and enforcement of safety and cleanliness rules

Clear Intent

At FastCAP nobody knew the company strategy and they were never asked for input. Unrealistic promises were made to customers which translated to toxic work culture and unrealistic expectations for employees.

I practice a form of management that I call Intent Driven Management . It is based on a 200 year old military command philosophy that I was exposed to while serving in the Israeli Defense Forces. The key principle of this philosophy is to create a decentralized operating environment guided by an operational intent. In other words, you get your people to take the right decisions and act on them without asking for permission. All guided by your Strategic Intent.

In 2018, we rebranded to Nanoramic Labs to communicate that we are an R&D driven company practicing a Product Leadership strategy. We are a business experimenting with nanomaterials, taking them out of the lab into industry to solve major problems in energy storage and thermal management.

A Product Leadership strategy means that we deliver innovative, cutting edge products and technologies. Essentially the customer gets the latest and the greatest. An organization delivering on this strategy needs to be focused on invention, product development, and market exploitation. It runs processes that are loosely knit and constantly shifting. It is entrepreneurial with a desire to work in unexplored territory. The culture of such an organization encourages imagination, out-of-the-box thinking with a mind-set driven by the desire to create the future. We measure and reward new product success and we don’t punish experimentation and risk. We allow and support variations that lead to innovation. This is how we describe our “playbook.”

But everything needs to start with Why. In other words, Why are we doing anything and What do we need to do to fulfill the Why?

For us is very simple:

We want to exit by 2023 for more than $1Bn by disrupting large markets in Energy Storage and Thermal Management Materials.

How we are going to achieve that is something we discover as we move forward, always testing our decisions and actions through the Why and What test. This provides a decision making framework for all our employees.

Intent driven management was designed specifically for what the military calls a VUCA environment. VUCA stands for Volatility, Uncertainty, Ambiguity and Complexity. It is hard not to notice how COVID-19 perfectly fits this definition.

Optimized Talent

We want our people to understand each other from a personality needs lens. When compared to face-to-face communication, remove interaction gives far less clues when trying to understand another’s behavioral needs. We teach people to use behavioral science to understand the needs of their colleagues in absence of face to face interaction. (See here an article on how to create a behaviorally balanced organization)

Using Slack anyone can ask for a summary of the behavioral profile for anybody in the organization:

This makes virtual interaction far more productive. You can understand the needs of people you are going to interact with BEFORE you ever interact with them and you can adapt your communication to their needs.

This is an example of a relationship guide provided by our Behavioral Assessment tool (Courtesy of Predictive Index):

Trust and a Web of Symbiotic Relationships

If you want to prepare for a crisis, you need to create a web of trusted relationships with your investors, lenders and customers. For FastCAP the journey to regain trust of our shareholders and the investment community was slow and bumpy. We started from a significant disadvantage. The key to success was constant communication and demonstration of trustworthiness every single day. We never hide bad news and we explain good news with cautious optimism. We want to under promise and overachieve.

We started with transparency towards our shareholders and lenders. We created a dedicated investor portal were we allow our shareholders to understand what is going on. We have more than 150 shareholders, so communication is not an easy task. The portal allows our shareholders to be informed in real time on critical events in the life of the company. We organize quarterly investor webinars that are recorded and available to watch on the investor portal. In times of crisis we can reach out to our investors in real time with specific messages or requests.

Nanoramic through the COVID-19 crisis

Immediately when we realized the pandemic will hit the United States, we scheduled two daily 15 minutes stand-ups for the executive team, one at 10am and one at 3:45pm followed by a company wide zoom stand-up. During this stand-up we go through all the good and bad news of the day and we allow employees to ask any question they want anonymously or not.

We took steps to protect our employees immediately, even before authorities started to shut down life as we know it to enforce social distancing.

We moved to 3 shifts and we limited presence in the office to 4 people per shift. Attendance is strictly voluntary and people sign up on a shift schedule the day before. We assumed that this is the new normal and started to experiment with ways to make this work for the next 6 months. We already had a flexible shift policy before the crisis in which you could take one or two days per week to work from home. We just made this the rule rather than the exception. Already a third of our organization was working from home before the crisis, with people scattered across 7 time zones. From their perspective nothing changed.

When the lock-down was declared in Massachusetts, we were were already operating in crisis mode for 10 days.

The next challenge was cash flow. As the world was coming to a standstill, we had no visibility on cash collections. This is where the web of trusted relationships kicked in. In the last 3 years we built relationships with industry that led to some of our customers becoming strategic shareholders. Trust was already in place when we asked them to contribute to an emergency credit line and acceleration of payments on existing contracts. During this time we maintained real time communication with our key stakeholders.

We quickly furloughed 1/3 of our workforce. Anybody that we assessed as not being able to provide meaningful contributions during the crisis for the next 6 months was furloughed.

This combination of quick action and shareholder/customer support provided us almost immediately with an additional 3 months of cash runway

How do you know you are doing what needs to be done?

Without data, you’re just another person with an opinion’, W. Edwards Deming

Three weeks into the crisis we ran a survey to learn how are we doing as a leadership team in this crisis. This is what got:

We are far from being out of the woods. As the crisis unfolds, we operate one day at a time using our intent as guidance for every decision we make and action we take. We don’t have “best practices.” We only have practices that work today and might not work tomorrow, so we are constantly validating and re-validating them (See here “The Best Practices trap” article). This crisis is a fail fast lab to experiment with new ways of operating. We are blessed with a culture that allows us to quickly learn and change course. We strive daily to take good enough decisions and actions in absence of long term information. But for us it is our natural way of operating.

More resources on intent driven management

From 5 to 50 to 500 book

Everyday Turnaround book

About the author: https://www.erickish.us/eric-kish

For Leadership needs in a crisis: https://interimexecs.org/business-survival/