'This is when leaders are born': Tech legend John Chambers says that only the strongest startups will survive the coronavirus crisis and shares his tips for making it through
- Tech legend John Chambers, the former CEO of Cisco, has spent the last few weeks sheltering in place in his Silicon Valley home.
- He has kept in touch with his team, including startup founders and CEOs who see him, not just as an investor, but also as a mentor.
- Chambers shared his insights into the crisis with Business Insider, including his advice to young business leaders who are going through a major economic downturn for the first time.
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Like many of us, tech legend John Chambers has spent the last few weeks sheltering in place amid the escalating coronavirus crisis.
The former Cisco CEO, who led the company for 20 years, predicted in December that a downturn was bound to happen soon, and that when it did, it would be bad news for many startups because "the recession is when most companies get wiped out."
Now, that downturn is happening.
A dramatically tougher climate means that only the strongest companies will survive: "This is when leaders are born," Chambers said.
He recalled what his own mentor - the late Jack Welch, former CEO of GE - told him about how one becomes a great business leader. The answer: "a near-death experience."
Chambers has been able to stay in touch with his team, particularly young startup CEOs, from within his Silicon Valley home, thanks to advanced video conferencing tools.
"It is so much better because 90% of communications is nonverbal," he said in a video conversation with Business Insider last week. "It's also fun learning how to do this with hundreds of people."
Chambers told Business Insider about the conversations he's having with startup leaders about how to handle a crisis. Below are edited excerpts from that conversation:
BI: When did you realize a crisis was about to hit?
Chambers: Early February. I've seen five economic downturns, five healthcare issues, three supply chain issues. I'm good at pattern recognition.
I was with one of my top companies, Uniphore. [The Indian startup, which recently moved to Silicon Valley, uses AI to automate customer relations, and is backed by Chambers' JC2 Ventures.] The CEO and I were talking about: Do we think this issue is going to spread out of China?
Two days later, I was talking to his cofounder, who was in Singapore. He said, "John, these orders are starting to slide. And we think we're gonna lose so many." I immediately connected the dots. I've seen this movie before. That following week, I began to call my CEOs and my companies and said, "I want you to plan. We could have a major restructuring coming our way."
BI: What were the steps you stressed?
Chambers: Number One, whenever you have a crisis, be realistic on how much was external and how much was internal.
Second thing you do very crisply is [you ask] what are the priorities you're going to deal with. Those are often built around customers, built around employees. How serious do you think [the crisis] is going to be? How long will it last? And they almost always last longer than you think or deeper than you think.
Then you've got to paint a picture of what you look like coming out, because that's where you've got to focus everybody on. Don't worry about the individual moves on the chessboard. We'll figure that out. But [ask], 'What do we look like after we're successful 12, 18 months from now?' assuming it's a three to five quarter phenomena, which they often are.
If you have to make a change [in your startup], do it once. Don't do what often VCs will tell you to do, which is, "All right, the minute you get in here, start cutting expenses" - which I do agree with - "Then start cutting headcount immediately and do layoffs."
If you were to make the changes in your people, or in your strategy or your company, do it once, not multiple shoes. Once you do multiple shoes, the employees no longer trust you, you spook your customers, you spook your investors.
BI: So you're telling startups to wait first, make a good assessment and do all the changes all at once.
Chambers: Yes. You've got to preserve cash, otherwise you don't protect the jobs of the people who are still there. Most companies will be off their forecasts dramatically, maybe as much as 25 to 50% or more.
How you navigate through that is key. If you can buy a month or two to watch, do that. Cut your other expenses out. Cut travel like crazy. Look at where you are overspending in marketing. Get frugality back in the company. Then communicate very openly.
It sounds basic, but it is hard to do if you've never seen the movie before, if you haven't lived through tremendous stress. It's unbelievable. It's about survival for the startups. It's about survival for the large companies.
We don't know if we're going to be able to flatten the peak of the pandemic that is hitting us. We're going to know that in about 45 days. Are we gonna be like South Korea? Are we going to be like Italy? It's the unknown that's a hard thing. We're in uncharted waters. If you had told me that we could go from 3% growth to minus five to 10%, maybe worse, by the next quarter in GDP, I would say impossible. But yeah, we probably will.
What I'm doing is teaching my young CEOs who have not seen it. Sometimes they really get it and their intuition is good. But sometimes, because they're real smart in one area, they think it applies to another area. It does not.
BI: So who should startups CEOs listen to more?
Chambers: Customers. Ask them what they're going to do? They'll tell you. They'll be remarkably candid. Ask them: where do I fit in your priorities?
BI: Will there be startups that will not make it?
Chambers: Unfortunately, yes. And a lot more than people think. There are also venture capitalists who aren't going to make it. We've had a huge proliferation of venture capitalists, and many of them hadn't been through this and their funds were doing okay.
If you invested in companies that were big on growth, but didn't have a clear path to free cash flow and profits, your investments are going to get crushed.
Just like you saw in 2008, a pretty fair number of venture capitalists disappeared and in 2001, the same. You'll probably see it here. Yes, you will have a higher failure rate for established big companies and for startups because of this. Not in the next quarter. But over the next two, three years. Because once you get wounded here, you often don't recover.
BI: On a personal note, how are you coping? What do you do when you're not advising startup CEOs and your team?
Chambers: I try to make sure I do a good job of supporting my partner in life, my wife, who was my high school sweetheart. They've teased that with this downturn and with many staying at home, the number of pregnancies and children will probably go up versus a normal curve. And the number of divorces will probably go up as well. I don't want to be in the second category and the first one's probably not an option.
I don't take myself too seriously. I run through the park and swim and I also appreciate life. Sometimes, occasionally you need to watch things like this happen to remind you that the most important thing in life is your health and your family.
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