What To Do If Your Business is On The Brink of Failure
By Anna Johnson on March 3rd, 2009Last week Jason Calacanis wrote a great article outlining his advice to startup companies on the brink of failure. Companies, for example, with less than 12 months left of cash with no realistic hope that anyone else is going to save them.
Jason’s advice is pertinent to us all – whether you run a venture capital funded technology company or a self-funded Internet marketing business – and regardless of whether or not you’re on the brink of failure.
Jason Calacanis writes from experience, too. As he puts it, he has been ‘to the precipice and faced the fall a couple of times.’
Indeed, when his first business, the Silicon Alley Reporter, got caught in the post-2000 ‘dot com crash’ the business went from $11.6 million in revenue one year to $600,000 the next, from 70 full-time staff to just 12, and from leasing a 20,000 square foot office to subletting ten desks at a public relations firm.
But it’s those testing times that sort the real entrepreneurs from the wannabes. Real entrepreneurs get through the tough times; wannabes give up.
It’s easy to say things like that. Many of us can reel out cliches, such as ‘when the going gets tough, the tough get going.’ But how many people have what it takes to DO what it takes during tough times?
In his article, Jason poses 12 questions, the answers to which will really show you what you’re made of as an entrepreneur. Questions like whether you can deal with: laying off half your staff not just once, but three times… having dozens of clients default… getting served with numerous lawsuits… and not having a decent night’s sleep for six months.
If you know, in your heart, you can do take this kind of pressure, you are a real entrepreneur. And Jason offers a solid ‘how to’ guide for what to do, as a real entrepreneur, in order to help your business survive when all signs indicate that it’s doomed.
As Jason indicates, there are really just three areas to focus on:
- Cutting costs
- Increasing sales
- Getting more capital
Firstly, he suggests reviewing your finances and working out how you can extend the life of your business by at least another 3 or so months. This will typically involve taking such steps as renegotiating your lease, cutting costs, and something Jason doesn’t explicitly mention but may be relevant – financial restructuring (i.e. your loan arrangements if any).
Secondly, Jason Calacanis reiterates what legendary entrepreneur, Mark Cuban, used to tell him: sales solves everything. Right now, you need to do everything you can to bring in more sales.
Including rolling up your sleeves, hitting the telephone, and pounding the pavement to personally bring in more customers and sales. Now is NOT the time to be precious or think of yourself as working ‘on’ the business. When your business is about to go under, you need to get back IN to the business and help it make more money!
Thirdly, if you have outside investors – angels or venture capitalists – now is also the time to see if you can get more money from them.
When you most need the money is usually the time when banks and investors are least likely to give it to you. But this is not the time to be making assumptions.
If you can put a solid business case to your lenders or investors and can show them how you are already taking sound cost-cutting and revenue raising measures, and how the money they give you will be used to help your company survive (and ultimately thrive), they may well come to the party.
Finally, if nothing works, Jason Calacanis advises you to make a plan to sell or close the business, or sell the assets… and to accept that although you may have lost this particular game, there are other games to play in the future.
Click below to read Jason’s article in full.
