Profit Sharing Plan for Earnest Team & Early Investors

Earnest is introducing a plan to share at least 20% of carry (profits) with our team, early investors (LPs), and other stakeholders who help us succeed. This is Earnest so we’re doing it differently and we’re going to tell you how and why we’re doing it that way. I’d also love thoughts and suggestions for how we can make this better before we finalize it.

What is Carry?

Carry is the primary incentive for the owners of funds in venture capital, private equity, and new weird investors like Earnest. Our business model is to raise money from other investors (LPs), invest that money in entrepreneurs’ companies, get money back from the companies via profit share (Shared Earnings) or a portion of a sale of the business, return more money back to our investors than they gave us and take a slice of the profits: the net amount of money we returned to our investors above what they originally gave us. The typical amount of this slice (and the one we use) is 20% which, fun fact, dates all the way back to the financiers of risky whaling voyages who used to take their cut as 20% of the returning whale… blubber, I guess?… which they “carried” off at the docks.

While funds do take management fees to cover their cost of operations, and sometimes those fees do get outrageously high, the primary incentive for funds of our size is the potential for millions of dollars in carry if we do our jobs right and our portfolio companies succeed.

Carry, or the right to receive it, is essentially the “equity” of the funds business.

Why share it at all?

The way most funds are structured is there is a management company owned by the Managing Partners or General Partners (GPs). The management company is the actual business that manages each fund, pays payroll, etc. Each time a new fund is formed, the management company is the one that gets any carry (profits) from that fund, which is then split among the owners of the management company. In our case, Earnest Capital LLC is the management company and it’s owned just by me as the sole founder. So by default, and from the start of Earnest, all carry from all funds goes just to me [insert scrooge_mcduck_swimming_in_money.gif]

So technically, I (and other fund owners) don’t have to share the carry with anyone but there are some really good reasons I want to:

  • Growth Trajectory: Earnest is a lot more like a startup than a traditional established fund. We’re doing new ground-breaking stuff and if we do it right there is a huge market of entrepreneurs who want to build modern, profitable, technology businesses to invest in. To do that we’ll need to break through successive bottlenecks which include building a bigger team and getting a ton more capital to invest in entrepreneurs. By giving folks a slice of the total long-term profits of Earnest Capital, they become incentivized to help us grow and meet that trajectory.
  • Long-term Alignment: With everything from the Shared Earnings Agreement to ‘skin in the game’ mentorship, we are obsessed with creating a strong alignment of incentives. Sharing carry helps everybody look beyond just this moment and just this fund toward our larger vision. I recently tweeted our 10-year vision and I want everybody in our orbit on board to make it happen.
  • Reward those who bet on us early: Getting a new fund, let alone an entirely new model of investing, off the ground is very hard. It takes early backers who believe in your vision and put their money in your hands to build a fund. But those early investors (or Limited Partners/LPs) only see the upside of their actual investment in the Fund 1, Fund 2, etc. If they end up being the catalyst that gets Earnest Capital to managing $100s of millions and backing 1,000s of entrepreneurs per year, they don’t see any benefit. Giving them a slice of the carry (I think appropriately) rewards that bet they made on us. We’re offering carry sharing retroactively for our Fund 1 as well as for our current Fund 2. Future funds are TBD at this point.

Structuring the carry sharing

It works like this:

1/ I’m committing at least 20% of the carry/profits from all Earnest funds to a pool (code-named Carry Corp, though it’s not actually a separate entity). It’s 20% now but could increase over time.

2/ Various stakeholders can generate credits for doing certain things that we will lay out shortly in specific detail. Examples would be working one month in a certain role might earn you so many credits each month, investing in Fund 1 or Fund 2 as an LP might earn your so many credits per $10k of investment.

3/ These rates are reset by Earnest management each year and will change. So working in a given role this year might have a different credit rate than 3 years from now. Generally doing the same thing but earlier will generate more credits

4/ You keep these credits indefinitely (there is some chance we may have to have some kind of cut-off date for administrative purposes but call it 20+ years)

5/ Whenever Earnest Capital starts to receive carry, we do some simple math. 20% goes in the pool and then everyone gets their proportional slice based on their credit ownership in that year. So in each year:

Total carry to Carry Corp * (your current total credits / all credits outstanding) = your carry share check.

That’s it.

What are the exact numbers?

We’re still working on that. Since this sets something in motion that could have implications for 20+ years we want to make sure we’re modeling the numbers really well and aren’t missing any key considerations. Hence publishing this and discussing with the Earnest community first.

Why this is a good structure

Big tip of the hat to Michael Grosser for originally proposing this idea and helping me think through the math and incentives.

We think this is particularly good way to structure incentives in a fund (though if you think it’s bad, I want to hear it). here’s why:

  • Early work is rewarded by the different credit earning rates. Backing us in Fund 1 for $100k counts for more than the same amount in Fund 2. Working 12 months in the same role in year 1 earns more than year 5.
  • Built in dilution: many carry sharing agreements are structured as a fixed % of carry in perpetuity. This is weird because now you’re drawing down from a fixed 100% pool. The Carry Corp model recognizes the early contributions and you get to keep them indefinitely, but as the team grows or new LPs join, the pie automatically grows to accommodate the larger pool. Want to keep your proportional share of credits? You have to keep pitching in to earn more.
  • Automatic vesting: by structuring credit earning as a monthly we don’t need complex vesting structure where we allocate you a big chunk and then claw back most of it if you don’t stay for 4 years. You come, you earn some credits, and if you leave you keep them. Easy.
  • Liquidity: This model bypasses all the complexity of options. There’s no need to exercise them, no huge bill you have to pay to convert them when you leave, no ongoing uncertainty of whether they’ll ever be liquid. Profits come in and you get a check, the end.
  • Just profits: this method is a lot simpler than actually giving a ton of people ownership in the fund which has all kinds of complexity. Everybody gets the upside in a straightforward way but ownership and management stays streamlined.
  • Broadly Applicable: the credit structure can be used to reward all kinds of efforts not just team and LPs. We have some plans to expand that group in a small way below, although you of course have to be careful to have too many people splitting the same pot. Although it can easily be augmented by just allocating a greater percentage of total profits to Carry Corp.

Who gets this at Earnest?

1/ Everybody on the team including retroactively to past employees.

2/ All LPs in Fund 1 and Fund 2 (the earlier investors in Fund 1 get a better rate of credit earning which will persist into Fund 2). TBD on future funds.

3/ We’re also exploring how to use credit earning as a way to incentivize scouts, mentors who are unable to invest in the funds, and a few other roles.

What about founders?

The good thing about employee months worked or LP dollars committed is they are reasonably standard contributions to Earnest. Earnest investing in a company is… different and quite hard to connect to carry sharing in a way that feels equitable.

To state the obvious, any carry at Earnest will only be a fractional share of our portfolio founders’ collective success. So for founders who’s companies really succeeds financially, we’re just taking some of their success, running it through the fund, through Carry Corp and then back to them… they might as well just keep slightly more equity on the initial investment. The only founders for whom this would potentially move the needle would be ones who’s companies do less well, which quickly gets into the realm of ideas around portfolio founders swapping equity or otherwise “diversifying” their risk within the fund portfolio. We’ve thought about and modeled every permutation of equity swapping and carry sharing we can think of and nothing seems to be a standard and fair way to do it because each investment can’t really be compared in an apples to apples way. Fundamentally how many credits should each company get as part of joining the fund and do they even care about that?

For the moment, our offer to help founders diversify their exposure to other portfolio founders is simply to essentially remove the minimum LP commitment on our subscription fund structure for portfolio founders to allow them to invest as much as feels comfortable in Earnest funds (which several founders have taken us up on already).

We may re-evaluate this if we can find a carry-sharing approach that incorporates portfolio founders in a sensible way.

In Summary

We’re sharing at least 20% of all carry/profits from Earnest Capital with our team and early investors via a nifty credit systems on the way to re-inventing modern funding for entrepreneurs. Let’s go!

Opening: Head of Finance & Operations

Earnest Capital is growing and we’re looking for a Head of Finance & Operations to take on some projects and areas of responsibility currently handled by the Founder/General Partner and make them a whole lot better.

This is a part-time (to start) remote-friendly role. We are particularly interested in folks who can demonstrate first principles thinking in finance and scaling remote operations.

Here are some of the areas of responsibility and projects to tackle.

Continued development of the Shared Earnings Agreement

We invented a new financing structure to better align us with entrepreneurs who want to build profitable sustainable companies. Inventing a new financing structure is challenging and fun and filled with all sorts of complexities, edge cases to smooth, ways to make it more understandable to entrepreneurs and investors, improvements to reporting from portfolio companies and so on.

Refine internal company valuation processes

We back early stage, profit-focused software companies that don’t necessarily intend to raise venture capital (and get quick paper mark-ups). Figuring out how to value our investments in these things is practically a blank slate at this point. Improving how we value our portfolio is an opportunity to create entirely new benchmarks for the kind of businesses we believe represent the future of entrepreneurship.

Build tools for founders

Transparency and Education are core to how Earnest operates. We love building simple free models and tools for founders either in our portfolio or just trying to build real businesses themselves. Examples would be our Founder Break-Even Calculator, the SEAL Calculator, and or more simple explainers for first-time founders like Why would a bootstrapper raise capital? Lots more ideas here than we have time to do and we would love for someone to run with this.

Earnest Capital Operations

We are a small but growing remote-first fund with an ambitious list of projects to launch and people to hire. Dot the i’s and cross the t’s and make sure Tyler doesn’t screw anything up at the operations level 🙏

Investor Management

We created a new quarterly subscription model for our funds and need a point person to monitor capital calls, answer or triage investor inquiries, and make sure our investors are happy.

If it sounds like a lot, don’t worry, we’re not going to throw all this at you at once, it’s just a wide sample of areas to potentially sink your teeth into.

Things not on your plate

  • You’ll be supported by excellent legal, fund administration, back office, and tax teams. So you don’t need to be the last word on these, though you’ll likely work with all of them.
  • Bookkeeping and payroll processing are handled by our back office finance team.
  • Fund accounting is handled by our fund administrator.

Practical Details

Timeline: we’d like to hire somebody by September at the latest. The plan is to take our time and look for someone great. We will likely let this post circulate for a few weeks before replying and setting up meetings.

Hours: Part-time remote is a great way for this to start and scale up over time. We love kids and dogs joining Zoom calls and are more than happy to work with someone balancing time with childcare.

Work Style: we are big fans of calm asynchronous work. We like Rework and Shape Up and really value clear writers. If you need to hop on a call every day to get things done, this may not be for you. A growth mindset with regards to collaboration tools is also essential… we use a lot of “no-code” tools to automate tasks and stay organized. You don’t need to be an expert on this stuff but if you’re easily overwhelmed by new tools to learn and collaborate with, we may not be the best fit either.

Compensation: We are still a startup, so while we certainly will strive for fair compensation, Palo Alto-competitive salaries are not on the table here. We’ll more than make up for it with flexibility, freedom, and exciting challenging work. “Equity” in the form of sharing in the carry of the funds, is a definite possibility (happy to explain more in discussion).

How to apply: Email me anything you find relevant at with “Head of Finance” in the subject line.

For Investors: Introducing Quarterly Subscriptions to Earnest Funds

A fund structure built for founders backing founders

tl;dr we’re updating how commitments are made to Earnest funds and making them a quarterly subscription product. To get more details subscribe here. But since transparent mega posts are how we do things at Earnest, I want to walk through the thinking as well.

Building Earnest has been a slow process of re-examining the standard approach to an early-stage fund. There are rate-limiting factors that prevent us from just scrapping every aspect of fund management at once, but—from the Shared Earnings Agreement as a financing structure, to skin in the game Mentorship, to Trailhead for the pitch process—we’re working our way through each aspect and re-building from first principles.

Earnest Capital invests in ManyRequests: the all in one SaaS for productized services

You’ll sometimes hear me say things like “more founders should think about founder-market fit and whether they really are uniquely suited to build their business” or “founders should try to build an unfair advantage well before they launch their product”… well, ManyRequests, from Robin Vander Heyden and Gabriel Lecointere is a case study in both of these. We’re super happy to be backing them at Earnest Capital.

Productizing a service is one of the best ways to move from selling your time online for hourly services, to building a product and a business. It’s one of the main on-ramps to internet entrepreneurship and the current global environment will accelerate that trend more than ever. But whether we’re talking about large agencies or solo freelancers, most of these businesses are hacked together with a mishmash of different tools for handling recurring invoices, service requests, allocating jobs across the team or outside contractors, and managing the job review. ManyRequests is the Shopify of productized services, a single full-stack app that you can run your entire business on.

But what about that founder-market-fit? Many of might have already followed Robin from his journey, shared on Indie Hackers, of building a productized design services business ManyPixels and growing it to a mid six-figures in recurring revenue business, then stepping back to allow his co-founders to continue running it. From there he has kept a break neck pace launching as a resource hubs for aspiring entrepreneurs, 3,000+ Facebook Community, and joined forces with Gabriel to launch the first version of ManyRequests in just about six months.

That’s what I’m talking about when I say founder-market-fit and unfair advantages 👏

The platform itself is exactly what you would expect from entrepreneurs who have literally run the exact business they are now building for: everything you need and nothing you don’t. A side benefit of founders who deeply understand the underlying business is over time you’ll start to see the product go from less of a blank slate, to one already infused with best practices that sets up new entrepreneurs for success. To be clear, there’s still a lot of work to be done and the product is still in its early stages, but I’m super excited to see what the team can do and all the businesses they can help create.

Open Gig: Information Designer

I’m looking to work with someone in a freelance capacity and I don’t quite know how to describe what we need. The closest I can get is an “information designer” … let me explain.

First, we have a very simple minimalist brand/theme that I’m about 86% happy with. Mostly it needs some obvious bits of polish and tightening of some screws here and there. So I’m looking for someone with a strong aesthetic understanding of details, typography, and UX + the ability to execute those changes in WordPress (or convince me to move platforms).

But, probably more importantly, the complexity around what we do is growing along with the percentage of folks who arrive at our site/brand with very little context on who we are and what we’re about.

We have a lot going on, including ….

We also have multiple stakeholders from:

  • Prospective founders interested in investment
  • Founders with no interest in investment that we still want to be helpful to (see Trailhead, Founder Summit, etc)
  • Prospective investors in our funds
  • Other investors trying to understand our model and if they should refer founders to us or co-invest with us (example)
  • Potential collaborators on mentorship and Founder Summit among other things
  • Media and other folks who need to get up to speed from scratch on us
  • Rad people who want to work with us.

The information architecture that we’ve built to date has been mostly ad hoc and I think it needs a serious re-work from someone with an eye for both visual aesthetic, UX, information design, and the ability to hack together enough CSS and theme work to get it done.

Is that you? Know someone who fits the bill?

Tweet at me: @-replies or DMs open.

Founder Break-Even Calculator

One of our favorite checks to write at Earnest Capital is the one that lets a founder go full-time on their business by quitting their job or spinning down freelancing.

Because we do “funding for bootstrappers” our preference is to be “first check, last check” (or at least for that the be Plan A). That means we hope that right after funding the scenario goes something like: initially the founder is drawing down the investment capital either to cover their personal runway or to hire additional folks, the additional founder bandwidth and/or team grows revenue even while the team is still drawing down capital, the company gets back to break-even (and then continues on) before the money runs out, no further funding is needed.

Sounds pretty simple but there are enough variables that it makes sense to have a model to play around with and generate various scenarios around how much you raise, what you spend it on, and how fast you need to grow to get back to break-even before you run out of money.

So we made this simple model for calculating the path to Founder Break-Even.

Update: you can now use a more interactive version of this model on Causal

👉👉Open in Google Sheets & “Make a Copy”👈👈


1/ Please use “Make a Copy” … don’t request access to this Sheet

2/ This is a very simplified model intended to give a rough view of the key variables here. We are intentionally not handling things like tax withholdings on salary or the precise correlation between MRR, users, and server costs.

3/ Share this if you like:

Earnest Capital Invests in Jetboost: the No-Code Webflow Sidekick

Have you heard of Webflow? It feels like everybody is talking about and using Webflow to build their websites these days. But while the no-code editor for designing sites in Webflow is best in class, the lack of a vibrant ecosystem of plugins, add-ons, and built-in functionality can be an obstacle for many users.

Jetboost founded by Chris Spagnuolo is on a mission to give your Webflow sites superpowers with a collection of Boosters. Chris is ahead of the curve as one of the first builders enhancing Webflow’s core features with real-time on-page search and dynamic list filters (with many more on the way). Chris also maintains Modkit, a free Chrome plugin to turbo charge the Webflow editor.

This platform is going to be huge and Chris is building the premier No-Code Webflow Sidekick. You can try all the boosters for free or clone a tutorial site and get started in seconds.

Earnest Capital Invests in Cachix

Recently Patrick Collison, CEO of Stripe, tweeted:

Can you sympathize? As programming has evolved, managing packages, libraries, and dependencies has become a constant source of wasted time and smashed keyboards for developers everywhere. The problem is compounded when managing multiple development, testing, and production environments and asymptotically complex across a large engineering team.

A Gemfile, package.json, or requirements.txt can make sure you get the correct versions of ruby gems or node packages, but what about gems with native extensions or other requirements on your local machine? The state of the art for most development teams is an elaborate README that inevitably fails to specify some mission critical local dependency. What Ruby developer hasn’t lost an entire day trying to get the exact right build of nokogiri working on a project?

Enter Nix, the modern reproducible package manager. Nix manages this complexity by explicitly defining the entire configuration in a way that is exactly reproducible, easy to rollback, and precisely shareable across teams and development environments. With Nix the entire build process for all the tools needed to run a project, is encapsulated in a single command.

For developers: read more about how and why Earnest mentor Nejc Zupan uses Nix across their development team here and watch how Shopify is deploying Nix across their 1,000+ engineering team here.

Nix—and the associated Linux distribution NixOS—is an open source project gaining popularity in the last few years with some obvious upsides and strong traction among the Haskell/Elm community, but it currently has some downsides. Namely, it’s hard to use and lacks some of the performance bells and whistles that are table stakes with other package managers.

Hence our investment Domen Kožar and his company Cachix. Domen is a long time community-builder and open source contributor in this space and launched a dedicated Nix consulting practice back in 2016. He’s on a mission to make Nix more accessible to developers and engineering teams around the world.

Cachix is free for open source and a superpower for engineering teams. With Nix + Cachix you can create a hash of your exact build, upload it to Cachix, and any one on your team from anywhere in the world can download the exact binary and get to work.

As with all package managers, the source code can be slow to build, so rebuilding binaries over and over is a time-wasting headache. Cachix is a binary cache for your Nix builds that developers and their teams can upload and query, reducing that wasted time by ~90%. The Nix community maintains an extensive cache of package binaries to keep your installs fast. However, as soon as you start using Nix for private projects, there aren’t many great options for how to cache your builds.

Enter Cachix, a caching system built specifically for development teams using Nix.

PS to the open source community – Are we a bunch of evil VCs that will force Cachix to either 1,000x or shut down leaving your development workflow dependent on unsupported projects? Absolutely not! If you’re not already familiar with Earnest Capital, we do “funding for bootstrappers” and invest in founders building calm, profitable, sustainable businesses. We’re in this together for the long haul.

Why Would Bootstrapped Founders Raise Capital

Yesterday I tweeted:

  • To be clear we have invested in companies that don’t meet all or any of these criteria, and we’ve also not been able to invest in companies that met it perfectly. But I wanted to give founders a wheelhouse of what we’re looking for.
  • But several folks asked the question (I’m summarizing): “that sounds like a successful business with a clear trajectory towards continued success. Why would they raise capital at that point?”
  • I agree this alone is a huge milestone in an entrepreneur’s journey and is itself a level of success. So why go and raise money at that point when you don’t “need” it. It’s a fair question and one I realized I haven’t explicitly answered, so this post is non-exhaustive list of reasons why bootstrappers in this or similar situations might still want to raise capital.
  • PS – but what about those that truly need it in the way someone who wants to build a McDonald’s absolutely must have a construction loan to get it done. It’s a fact of the investing world right now and the return requirements of funds that early-stage investors are generally much more interested in opportunities that don’t necessarily need the capital vs those that truly do. I think about this constantly and right now my opinion is that the best route for entrepreneurs is to try to bootstrap through those early phases.
  • I am constantly thinking about experiments to try here and keeping an eye out for other opportunities for very early stage capital but for 99% of entrepreneurs the best thing will be to bootstrap to some amount of traction. We are building out resources and a community for this at Founder Summit Remote.

Uses of Capital

So in this scenario you’ve got a nice software business that’s maybe not a rocketship but it’s growing steadily, some base level of monthly recurring revenue, and customers are fairly happy and stick around. What would you go and raise outside capital and what would you do with it? I’ll list here a few of the reasons I feel are most aligned with us as investors, thought there are many more:

  • To go full-time: by far my favorite reason for investing at Earnest is so that the founder(s) can go full-time on there business. They have something that’s clearly working but they are still at their job or freelancing and trying to balance it with a growing business on nights and weekends. The long slow SaaS ramp of death is real and even with steady growth it can be a long stressful slog to get to founder-break-even1. Outside investment let’s the founders quit their jobs or spin down their freelance work to focus full-time on their business. In my experience the amount of capital for this can vary by an order of magnitude from a solo founder just reducing freelance contracts to multiple founders with kids, a mortgage, and a full-time job they have to quit (we’ve invested in both).
  • Key early hires: another thing outside capital can unlock is making some early key hires that will take your business to the next level before you can 100% afford them. Most bootstrapped businesses are built with founders plus the best team the meager revenue can afford. At a certain point the business really needs an experienced senior engineer, head of marketing, director of partnerships. The founders know this can take the business to the next level but they’re operating at or near break-even and it will take many months to build up the cash and margin in the business to make an offer to this kind of employee. Putting outside cash in the bank can give founders the confidence to go and recruit this kind of top talent.
  • Capital Cushion to keep thinking long-term: Imagine you’re two founders at $12k MRR… this might be just barely break-even to pay your hosting bills and cover each founders’ cost of living. At this phase, you’ve been slogging on this business for a long time, probably not making much money and you’re just now eking out a living as an entrepreneur. There can be a tendency at this point for founders to get very conservative and become afraid to make big moves, launch products, experiment with pricing, say no to customers who are not a good fit, or hire more people. You’re barely hanging in there and you don’t want to risk anything. Having some cash in the bank that ensure you can make a few mistakes and still keep your salary enables bootstrapped founders to continue making long-term bets on the business.

More than cash; changing the trajectory of your business

At Earnest, we typically like to invest in businesses where this will be the “last check” in the sense that business plan after we invest is to not need further outside investment. What that means is that the capital itself typically solves a short/medium-term problem (go full-time, make a few key hires, etc). But Earnest is intended to be more than just a source of cash and our goal is to help increase the long-term trajectory of your business.

This by the way is what the founders we have invested in consistently rate as the most valuable aspect of working with Earnest, far and above the cash itself. Here is our approach:

  • Mentorship: we bring together an incredible group of experience founders who are both investors in the fund (and thus in the companies we back) and who allocate time to help founders navigate the uncertainties of building a business. Learn more about our unique approach to mentorship.
  • Community and Accountability of Like-Minded Founders: A very common challenge bootstrappers face is that 99% of all the advice, resources, and communities for founders are geared towards those who are currently or aspire to raise venture capital. Through the companies we invest in, we bring together a tight knit group (through Slack, Basecamp, Zoom, Meetups, and more) that is there to collectively solve problems from similar points of view, and to motivate and encourage each other.
  • Shared Resources: Need help finding an accountant who actually understands SaaS? Want someone with experience to look over your first big enterprise contract? Looking to recruit and interview your first senior devops engineer? We put an enormous amount of energy into building out shared resources specifically tailored for the needs of bootstrapped software founders.

Is it worth the hassle?

The last thing I sometimes hear and saw on this Twitter thread is roughly “yea I see the upside but is it worth all the hassle of dealing with investors?” I empathize with this immensely. As an entrepreneur I wasted a big chunk of my life trying to raise capital from VCs and I know tons of horror stories of founders who had to deal with investors taking control or trying to force them to take their companies down paths they didn’t want to go.

At Earnest we’ve done everything we can to be uniquely low hassle for founders. Our Shared Earnings Agreement structure can be executed in a day with no need to change the company structure, essentially no closing costs, no issuing of shares, and gives us no control over the business. We think it aligns incentives with founders of the bootstrapper mindset more than any other form of capital (it’s why we had to invent it).

If it sounds to good to be true we are always happy to put you in touch with the founders we work with who have been through the process.

  1. When the business generates enough revenue to cover the founders’ cost of living

Earnest Community Thoughts on COVID-19

The world is being rocked by COVID-19 and founders, like all of us, are trying to adjust to the new reality. We hope that you’re being as safe as possible, and staying at home, through these times.

While personal health and safety are paramount, all of the founders we work with are also seeing their businesses, teams, and companies affected by the pandemic. 

This week, we hosted an open Zoom with our community of founders and mentors to hear how they are dealing with this crisis, what they are seeing in their businesses, and how they and their teams are responding. In turbulent times, a community of other founders becomes even more critical.

Below we have catalogued some of the key observations, insights, concerns and suggestions from our notes on the conversation. Not all of these were consensus opinions and the point here is just to give a sense of what one group of founders is thinking about and considering. Interjected through are some notes from me directly with “TT Note.”

Be well and stay safe.

Earnest Capital 

Current impacts on the business and what’s to come

  • Many companies are seeing sharply reduced support tickets or in-product activity. One suggestion was to re-allocate support team members to product work, sales, or providing “done for you” versions of your software product.
  • Almost all teams have started freezing or cutting costs for both the people and product sides. 
    • Nearly every team has frozen any in-progress hiring plans though none as of yet have laid off any staff.
    • Some teams are directly reaching out to key technology partners/vendors they work with for discounts or refunds. 
    • Many teams have enacted a hiring freeze and are working to “repurpose” team members with above-average bandwidth to new tasks such as customer support or engineering. 

TT note: Remember these are extraordinary times for everyone and while founders should be generous, don’t be afraid to make asks of your customers, partners, and vendors too. 

  • If lay-offs are necessary the consensus was to do it quickly and decisively to not leave their team members in limbo and allow them to access unemployment benefits and other relief that may be coming.
  • Certain kinds of businesses will see increased interest from the work from home, social distancing situation. Some of our portfolio companies empower folks to learn from home or launch a side hustle. Perhaps unsurprisingly, they are seeing a surge of interest as people stuck at home finally get around to starting these projects. 

Founder & employee mental health

  • Top leadership is setting up an abundance of office hours
    • Some are using office hours for team members to talk to leadership about mission critical activities; others are leveraging office hours to focus on the lighter side of things. 
    • One founder is coordinating live stream gaming as a way to bond and process the pandemic together as a team. 
  • Over-communication from leadership is key as things change day by day.
  • Teams are placing a bigger impact/effort into reaching out and connecting with loved ones, both in-home and around the world. 
  • For founders and team members with kids, companies are sharing tips amongst each other for the best ways to WFH with kids. 
    • Others are sharing tips on how to work with their children to help them process the pandemic and its implications.

Messaging to Customers & Sales

  • Many founders have already paused or are considering pausing all cold emails or sales outreach. 
    • Some are continuing with highly directed sales outreach IF they are directly helpful in this climate (i.e., tools to enable more productivity in a WFH situation might be fine). 
    • teams are making this call on a case-by-case basis but bias towards pausing. 

TT Note: completely business as usual emails that don’t acknowledge the situation will probably come across as tone deaf but if your product is genuinely helpful in the current environment and you acknowledge what’s going on in the world, I believe it’s okay to continue with sales.

  • All teams are proactively talking to customers to see how they are doing, learn what they want/need from the product, and generally seeing how they can be helpful. 
  • Many teams are giving the support teams more autonomy to provide refunds, extend trials, and provide the best experience possible. 
    • Some teams are having their support team work on knowledge base articles, improve their FAQ, create helpful videos and other items to bolster their support offerings. 
    • Some teams are having the support team shadow other departments for more “hands on” deck (many support teams seem to have more time on their hands and teams are looking for ways to repurpose their CS efforts elsewhere in their company). 
  • For customers asking to cancel for COVID-related reasons, many founders are offering to simply pause subscriptions indefinitely and restart them whenever customers being using the products again. A small but effective change.

TT Note: it is important to be generous and this will be an opportunity to build lifelong relationships with customers. But I am also encouraging founders to be careful not to be too generous with credits and refunds in a way that they can’t sustain for months on end.

We have all seen the “flatten the curve” graph and it’s worth noting that while the successful case brings down the y-axis, it elongates the x-axis, meaning every action here is directed towards extending the current situation. 

As a first step, I recommend adding something along the lines of the following to your refund/credit emails: “we are happy to provide a credit for next month. Just so you know we are also a small independent software company and while we will do our absolute best to be supportive and flexible through this crisis, we are not Amazon and can’t offer our services for free indefinitely.”

  • Remember that this is a moment to potentially build a lifelong bond with your customers and act accordingly

Making the best of a bad situation

TT Note: look, this is a terrible situation but entrepreneurs need to adapt and consider how they can make the best of this situation. Can you adapt your product or launch something complimentary that makes life in the time of corona more productive or bearable. Do it.

  • On the whole, teams have seen that paid acquisition-related costs  are going down, so suggests to some that this might be a good time for paid marketing IF you have a good grip on the fundamentals and be very careful with your messaging.
  • For teams in the B2B space, consider redirecting energy at larger enterprises (who have a larger cash cushion than most) vs. the smaller businesses that might shut down
  • “Do things that don’t scale” makes more sense than ever right now. Most likely your opportunity costs have gone down so taking extra special care with key customers is a great idea.
  • Use the break in growth to refocus on product. Do the work on a new core premium tier feature set to have it ready to launch when we come out the other side of this.
  • Many teams are focusing on existing customers vs. going after new ones with mindset of “doing things that don’t scale” like: 
    • Targeting outreach to specific customers with bigger budgets for a premium offering where they enable their team members to jump in with manual work
  • Spending more time with current customers on calls/demos than an automated process