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George Arison started planning as he saw coronavirus begin to spread outside of China: What would happen if his car sales startup Shift lost 15% of its revenue? Or 50%? What if it had to cease operations entirely?
In the last week, those models became reality. On Friday, Arison, Shift's co-CEO, broke the news to his San Francisco-based company over Zoom that all of its nearly 130 salaried employees would have to take a 25% pay cut. Some are being furloughed. Between 30% and 50% of Shift's around 250-person operations team, who work on the ground in West Coast cities, would be put on furlough. Others will have their work hours reduced. No one at the company will be unaffected.
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"What you're doing to people is really painful because you're hurting people who most need capital right now, right? And that just really, really sucks," he said. "I didn't sleep probably one solid night of sleep in the last 10 days until this weekend because it was so horrible to do."
Arison is not alone in having to make tough choices when it comes to his business — and fast. In the last week, hundreds of startup workers have been laid off or furloughed. Real estate firm Compass cut 15%, or around 375 employees, from its workforce. Online cannabis startup Leafly laid off 91. Hospitality startup Sonder did a mix of furloughs and layoffs when it trimmed over 400 employees, or nearly a third of its workforce. TripActions on Tuesday laid off a reported 350 employees.
"There are very few companies where they have a choice in not doing this. Very, very few," Arison said.
While some companies have taken swift action, most startups founders Arison has spoken to are still just trying to wrap their heads around how fast the market has changed in the last two weeks. "A lot of them are kind of going through the four stages of grief, which is that now they're in a state of denial," he said. "My advice would be: You've got to move decisively. This is when it really matters. You do not have 45 days to go through the stages of grief."
As he was watching COVID-19 drive people indoors and away from public places, Arison knew that Shift was in a less-than-ideal spot. The startup helps people buy and sell cars online, arranging for things like inspections and driving used cars to people's front doors for test-drives.
In the wake of COVID-19, Shift moved its business to doing no-contact test-drives (where they wipe down the car and its keys before someone can take it for a spin) and it closed all of its physical hubs. During uncertain economic times, it's unlikely many people are racing to buy a car like they used to.
In the past six years, his company has raised over $300 million in a mix of equity and debt from backers like Goldman Sachs and Draper Fisher Jurvetson. Still, before all this, Arison had been planning to fundraise sometime this spring or summer in a pre-IPO round involving larger public market investors.
Now, fundraising isn't really an option.
It's become a matter of managing his startup's runway, or how many months it can survive without needing more cash. "Basically, we cannot afford — because we have limited runway — to lose any runway," he said. "If anything, we have to gain time."
Instead of laying off staff, Arison decided on a mix of staff salary cuts and furloughing employees to start. Shift has hubs only in California and Oregon, where furloughed workers may apply for some unemployment benefits. The decision keeps employees covered under Shift's health care plans — a big priority for Arison and his co-CEO, Toby Russell. To help make up some of the difference, Shift accelerated its stock investing plans so employees earn stock at double the rate. Assuming the startup raises at least $100 million later this year or early 2021, Arison plans to pay back the salary deferral.
The question for all startup CEOs: Will it be enough?
Arison says this will be sufficient to keep Shift afloat for right now. But the long term is anyone's guess. Who knows how long life will be disrupted this way? In this uncertainty, Arison warns that founders can't wait until it's too late.
"There's no sacred cow in this kind of scenario," he warned. "The sooner you move, the better off you'll be."
Biz Carson ( @bizcarson) is a San Francisco-based reporter at Protocol, covering Silicon Valley with a focus on startups and venture capital. Previously, she reported for Forbes and was co-editor of Forbes Next Billion-Dollar Startups list. Before that, she worked for Business Insider, Gigaom, and Wired and started her career as a newspaper designer for Gannett.