Discussing Small Business Start Up Failure For Entrepreneurs

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A lot of CEOs with less than 12 months of top mitt impact been
asking me for advice most what to do, given the large economic
turmoil we’re facing. I thought I would verify the instance put these
various conversations into digit telecommunicate to help those who are “up against
it,” as we say in Brooklyn.

Now, sprinting to the startup precipice is digit of the most horrible
and exhilarating experiences you crapper impact as an entrepreneur.

The exhaustion sinks in as you slam on the brakes. You dig in your
heels and watch the soil and pebbles fly soured the cliff as your left
foot dangles downbound in the ravine, with your correct measure desperately
trying to save you. Your momentum could–if the wind kicks in–send
you straight downbound to your death. Heck, modify the digit inches of earth
under your correct measure could give artefact and send you to your death.  Or,
you could artefact and fall on a magic carpet that module verify you to the
Promised Land.

OK, that terminal part is prefabricated up. You’re probably screwed and you undergo it.

This telecommunicate is intended for startup companies with less than 12 months
of change in the bank, who undergo in their hearts that their VCs impact lost
faith, and that Google, Yahoo or Microsoft aren’t feat to garner them
up on a magic M&A carpet ride.

This is the telecommunicate I’d aforementioned you to forward to your friends who are
running startups that could go under in 2009.

Some background
————————-
I’ve been to the precipice and visaged the fall a couple of times. I’ve
learned a couple of things from the experience. I crapper tell you that
the first instance it happens, you’re terrified, because everything you’ve
done–all the effort and dreams–will probably be lost (like tears in
the rain).

The second instance it happens, you’re deeply concerned, but undergo it ain’t
over until you’re splattered on the boulders below.

The third instance it happens, you smile and say “let’s intend it on!”

You see, there are digit types of entrepreneurs in this world: actual ones
and the folks who play entrepreneurs for some portion of their lives.
From a distance, most folks can’t tell who’s who. In up times, when
the market is dowse with cheap money and unexplained exits (Bebo,
anyone?), everyone looks brilliant.

It’s only when the tide goes discover that you undergo who’s naked. (Who said
that? I hear it on CNBC every other hebdomad now).

The differences between the digit types of entrepreneurs become clear
when the fan and the manure meet. The faux entrepreneurs run for cover
rather than dealing with the storm. They go back to their plush,
somewhat mindless jobs as VPs at mega-companies, patch the real
entrepreneurs meet up and clean up the mess.

We’re feat to find discover who the actual entrepreneurs are in 2009 because
they are feat to spend added 12 months, on top of the terminal six,
cleaning up the mess. It module be digit years of amount pain, so before we
go some further you gotta make the decision if you’re in or you’re out.

In or out?
————————-
Here is a rattling easy artefact to amount discover if you crapper deal with the mess
in face of you. How many of the following crapper you deal with:

1. Laying soured half your staff.
2. Laying soured half your staff again threesome months later.
3. Spending 20 hours a hebdomad on the phone being yelled at and
threatened patch trying to negotiate a dozen contracts–like your
T1, phone system, rent, equipment leases, etc.
4. Having an investor shriek at you and tell you that they module ruin
you, your career and that “you’ll never raise money again, you mother
f-er.”
5. Laying soured half your staff for a third time.
6. Getting served a half-dozen lawsuits, courtesy of the folks who you
tried to negotiate with in saucer number threesome who wouldn’t deal.
7. Having digit of the grouping you’re renegotiating with come to your
office every hebdomad and ask for their check in person.
8. Having the aforementioned media outlet that once claimed you were the next
Barry Diller write that you’re a fraud.
9. Not getting a beatific night’s sleep for sextet months.
10. Having dozens of paying clients default on their bills.
11. Having staffers who you rattling requirement to double downbound and pore walk
out the door after you helped make their careers.
12. Have the grouping who begged you for a gathering at the peak not even
return your emails or phone calls.

If you can’t deal with these 12 situations, then you’re out. It’s time
to refresh your resume, tell your board you resign, sublet your place
and go to Thailand. Go sit on the beach and lick your wounds for $40 a
day (all-in) aforementioned the fauxtrepreneur you are. You suck. I hate you.
You’re smart enough to revilement your loses in a artefact I could never
understand.

If you think you crapper handle most of the horror above, well, then you’re in.

How do I undergo this?

Those 12 things–and more–happened to me for over a year when Silicon
Alley Reporter, my first business, got whipsawed by the dotcom bust.
We went from $11.6m in revenue digit year to $600k the next. From 70
full-time grouping to 12. From a 20,000 square measure office to subletting
ten desks at a PR firm.

Personally, I went from being on top of the world, with appearances on
Charlie Rose, 60 Minutes, CNN, and Fox News, to being savaged in the
press as a humbug who got lucky and who no digit would ever hear from
again.

My office used to intend 100-200 phone calls a day and I had two
assistants.  Six months later, I answered my own phone–on the rare
occasions it would ring. When it did, it was either my mom occupation to
check in on me or a vendor occupation to yell at me.

It was the worst year of my life, but it prefabricated me who I am today. I’ve
never talked most the tailspin that my playing went into, and how I
barely managed to realty the plane, but I intend the significance that there are a
lot of twenty-somethings most to undergo the aforementioned thing, and
perhaps my lessons could help.

I’m not feat to tell the story. (That would verify 80,000 words, a hard
cover and the correct publisher), but I’m gonna share some of the
lessons.

Let’s intend to work.

The Good News
————————-
If you’re a actual entrepreneur, you’re ease reading. If you’re a faux
entrepreneur, you’re writing your resignation letter, considering
which beach to surf and how long to grow your beard. God bless you
fauxtrepreneurs, because you’re gonna impact a such nicer 2009 than the
real entrepreneurs who are “up against it.”

Of course, a year from now, the actual entrepreneurs module be
battle-scarred beasts who are capable of taking bounteous bold risks, and
you’ll ease be crying most what could impact been with your last
business patch attending back-to-back meetings most null at BigCo.
Not that I’m judgmental of fauxtrepreneurs who create noise, distract
investors from the actual workhorses, suck at their jobs and verify no
real risk in their lives.

No, on the contrary, I love you fauxtrepreneurs, because you create
the foundation upon which actual entrepreneurs stand. At the start of my
career, it wasn’t east to defence out, but by the instance I’d done digit or
three businesses and become a fixture in the technology industry, I
had figured it out: Longevity is a bounteous part of credibility. I met
Esther Dyson, Fred Wilson, John Brockman, Jerry Colonna, Mark Cuban,
Ted Leonsis, Seth Godin and countless other luminaries between 1994
and 1997.

Well, it’s a dozen years later and they ease verify my calls and
respond to my emails.

Longevity is credibility.

Oh yeah, I almost forgot the beatific news: People’s reputations are made
in the bad nowadays more than the beatific times.

Even if you’re 100% sure your company is feat to crash in the next
six months, you’ll learn more from staying on board than you module from
running. You’ll also earn the respect of your peers and you’ll learn
exactly how grouping break downbound and lose their cool. You’ll wager how
certain VCs screw entrepreneurs, you’ll wager entrepreneurs screw VCS
and you’ll watch the lawyers and landlords amass their vig the
entire time.

Most of all, you’ll realize who you are and who your actual friends are.

So what’s the sitch?
————————-
You requirement to amount discover your runway immediately. This is rattling easy to
calculate: you look at how such change you burn every month and divide
that into how such change you impact in the bank. Your accountant crapper do
this for you or you crapper simply look at your P&L and slope statement.

Once you undergo how many months you’ve got left, you’ve got to do the
hard impact of trying to modify it by at least 1/4. This effectuation cutting
staff, negotiating with your landlord and cutting some and all
recurring bills. You then requirement to look at your revenue streams and
figure discover if you crapper double them. In most cases, if you do these two
simple things, you module impact increased your runway by 50-100%. If you
double your runway, your chances of figuring discover what your business
actually is module go up exponentially.

You also requirement to do a monthly P&L analyse with your management team.
Look at every single recurring cost you impact and amount discover how to cut
it. In an up market, this verify of obsessiveness is often wasteful,
because you’re in a race to verify market-share. In the case of MySpace
vs. Friendster vs. Facebook every having unlimited assets for a period of
time, this makes amount sense. Why worry most $100,000 in server costs
if you’re racing to wager who gets bought for a billion dollars first?
However, this is not that time. You impact to change your style. There
are nowadays to impact the gas and there are nowadays to conserve your gas.

Look at it this way: Getting the most market-share and streaming discover of
cash is the equivalent of getting to the slug first without the
ability to intend back to Earth. Congratulations, you won the race… and
now you’re dead!

My primary playing correct now, Mahalo.com, is lucky to impact raise a
large amount of top and is feat to fairly easily make it to
profitability based on our growth curve, runway, modest spend and
significant traffic (we’re at 5.6m unique visitors over the terminal 30
days).

We couldn’t be in a stronger position.

However, modify we recently did a deep analyse at Mahalo and were able to
cut 30% of our costs in under 60 days. The company is ease growing
just as fast, and in fact we’re actually more efficient. There is
something strange most that: 25-person companies seem to intend more
done than 40-person companies in my undergo (other CEOs impact told
me the aforementioned thing).

Perhaps it’s because after you trim downbound you impact the most efficient
folks left, or maybe we’re every more focused because we don’t impact to
communicate what’s feat on to as many people? Does anyone undergo if
there is some research on optimal team size for startups? I’d be
interested to hear what the studies say. Anyway, we prefabricated the hard
decisions and that extended our runway by a year. That effectuation Mahalo
will be here in 2013 if we make every single wrong decision and we’re
asleep at the wheel. Of course, we’re focused aforementioned lasers on getting
to profitability and developing a rattling helpful service. If we can’t
figure this playing discover by 2013 or 2014 then, well, either we really
suck or there is no solution to combining search and knowledge
exchange (of instruction we undergo search and noesis exchanges crapper and
have worked–so we’re bullish).

Also, when your company goes through this kind of economic boot camp,
I think you intend stronger. You understand which parts of your business
are working the best and which ones are, well, not working at all. We
had digit area of our playing that was digit percent of our spending
making 30% of our revenue. You amount these things discover when you start
cutting. It’s a sick and sad process to be sure, but Darwin is your
friend at a startup.

Put your VCs to the test
————————-
If you’re streaming discover of money, you’ve got threesome choices: revilement costs,
make money or raise capital. We’re feat to intend into cutting costs and
making money below in a minute, but I’m a bounteous fan of testing your
investors. When the market is crushed, most VCs intend realistic, greedy
or paralyzed. You’ve got to amount discover where you defence with your
current investors as apace as possible, and the quickest artefact to do
that is to ask them for more money.

Let’s say you’re burning $200k a month and you impact a meg dollars
in the bank. Go to your VCs and say something aforementioned the following:

“John, we’re feat to run discover of change in fivesome months. I’ve developed a
cost-cutting and revenue-generating plan that I conceive module extend
our runway to 10 months. I’d aforementioned to present it to you and your
partners tomorrow for a half-hour with the goal of doing an ‘A+ round’
of digit meg dollars. I genuinely conceive in this playing and I’m
willing to do a flat-round, bust my ass for the incoming digit years and
come discover of this recession on top.”

Now your VC is probably feat to start asking questions–as they
should. They may try and push soured the discussion of the “A+ round.”
Your job is to defence concern and say something to the gist of:

“Well, we’re both vested in this playing and I’d aforementioned to verify the
time to present to you guys this hebdomad and intend a response from you
either artefact within fivesome days. I undergo it’s a compressed instance frame, but
we’re living in extraordinary times, and if you guys don’t conceive in
the playing the artefact I do, I crapper accept that and make other
arrangements.”

At that point, you say nothing. Silence is the large negotiating
tactic ever created–use it. Your VC correct now module be thinking the
following:

a) “This guy/gal’s a actual killer and I wish every my CEOs were this
focused. At the rattling least, I should hear them out.”
b) “This guy/gal has added opportunity, so I’m gonna impact to deal
with this train wreck myself–that module suck.”
c) “This playing is a dog and I shouldn’t impact invested in it. Since
they’re asking for the truth, I strength as well give it to them.”
d) “I’m an moron and I can’t make decisions. Let me push this discover a
couple of weeks and make this person’s life hell patch I
procrastinate.”

That terminal part is not what the person would actually say, but that’s
basically the translation of “let me think most it.”

Now, in cases a, b, and c you’re in beatific shape. You’re gonna either
get your gathering and money or you’re gonna intend told you’re not getting
any more funding. Situation D is what you don’t want. If you’re
running discover of provisions in the middle of the Atlantic, your best bet
is to go either East or West–not in a circle.

VCs and investors module sometimes send entrepreneurs in circles, either
inadvertently or as leverage. Sometimes VCs are juggling a lot of
balls and can’t focus. Sometimes they’re inexperienced and/or they
have issues that don’t concern your business, aforementioned their limited
partners, their partners or their divorce settlements. Sometimes
they’re cutthroat and undergo that, when you’re downbound to your terminal digit or
three payrolls, they crapper extract a 2-3x liquidation preference discover of
you.

It’s your job to obligate the issue now–don’t wait.

Heck, modify if you impact a year’s worth of runway, you should probably
do this kind of abstract so your VCs undergo you’re the actual deal and so you
know where you defence with them.

Put your staff to the test
————————-
If you’re downbound to sextet months of cash, you’re gonna impact to revilement the
bottom 1/3rd of your staff, if not half. This sucks, but there is no
choice. You’re gonna also impact to revilement salaries. So, here are some
suggestions on how to do this:

1. Get rid of the non-core staff. Look in places aforementioned PR, marketing,
and admin to cut. See if you crapper put some of these folks on part-time.

2. Look at the salaries of your underway staff vs. market and look for
ways to revilement the high-priced ones who you crapper intend cheaper at the
current market. I undergo this sounds cutthroat, but remember, this is
advice for folks feat discover of playing in sextet months. Another artefact to
run this test is to ask yourself “Would I hire this person for this
amount today?”

3. Go to each member of the team who is over-paid by today’s market
rate and tell them that you’re probably feat to be cutting their
salary and that you’re increasing their options. Ask them how they
feel most it. Some grouping crapper verify a clear cut, others can’t–you don’t
know until you ask.

I’m rattling against cutting people’s clear above cutting position because
you poverty the grouping remaining in your organization to be happy. Of
course, sometimes that’s just not realistic. Many CEOs overpay in a
hot market because they feel they impact to, and those folks are the
ones who rattling requirement to verify this hard action now.

Put your landlord to the test
————————-
Call your landlord and ask them to intend a cup of coffee. Do this in
person. Let them undergo that it’s 50-50 you’re feat discover of playing and
that you requirement their help in the form of quaternary months liberated rent,
starting today, the knowledge to sublet some space (if you don’t have
that correct already) and to ready the lease at the aforementioned rate you already
have. Tell them you feel horrible most this, and you wouldn’t ask
them to do this if it wasn’t urgent, but you didn’t poverty to drop the
bomb on them fivesome months from now when there were no more options.

Remember, quiet is your friend. Tell your story and wager what they
say. I did this at digit saucer and not only got liberated rent, I got 50% of
our letter of credit freed up. It was a win-win. Trust me, your
landlord is probably facing a LOT of fallout correct now… better to
get half than nothing.

Put your vendors to the test
————————-
Since you’ve probably got webhosting, CDNs, equipment leases, and
other recurring charges on your credit cards, cancel those cards
immediately. Call up each vendor and tell them you requirement sextet months
free patch you amount discover your status, and if they can’t do it, ask
for suggestions. Then call each of their competitors and let them know
that you are willing to alter over for the first sextet months free.  If
you intend digit of quaternary vendors to do this you just saved 25%–I look you
can intend digit or three.

Vendors would rather eat some profits for sextet months than lose your
business. If they can’t hold you in your instance of need, then you
should find someone who will. There is a LOT of competition discover there
and you crapper negotiate harder than you probably think you can. Tell
vendors you’re willing to alter if they give you sextet months liberated and
see what they say. We’ve had folks offer us a *year* of liberated service
to alter (of course, that’s an exception, not the rule).

Put yourself to the test
————————-
If you’re feat to ask so such of your staff, investors and vendors,
you obviously impact to verify a impact yourself. Go to your VCs and ask them
to participate in the incoming round–the A+ round. Tell them you know
it’s not a lot but you poverty to put in $5 or $10k in the round as a
show of support. This module termination in them saying it’s not necessary.
After that, tell them you’ll delude your automobile and verify a bike to impact and
put $20k into the playing if you crapper intend that for your car. Make sure
your staff doesn’t verify a bigger revilement than you do in salary if you’re
doing salary cuts.

Even if it’s just ceremonial, it effectuation a lot to make cuts. I’ve
stopped motion as such to conferences modify though they cost me
little to null (normally grouping clear me to speak or at least clear for
my travel). Of course, don’t revilement motion if you’re feat to
conferences where you strength find clients or investors (which is why I
travel half the time!)

Put your product to the test
————————-
As Mark Cuban told me over and over again, “Sales solves everything.”
If you can’t delude your product, it’s not a product–it’s a hobby. Take
your consumer service and delude it as a software package to someone. Go
on the income calls yourself. During the final year of Silicon Alley
Reporter I prefabricated cold calls and set up lunches to delude folks on our new
product, Venture Reporter (the rebranded Silicon Alley Reporter). It
works. When grouping wager the CEO making income calls, they respect the
company and verify it seriously. When the VCs and staffers wager you doing
this, they intend inspired.

Put a whiteboard up and count some stat you can: income calls made,
meetings scheduled, contracts sent and income closed. Give your team
something to think most other than just the bottom line, because you
might impact to celebrate the little victories before getting the check
in the door. Celebrate getting the meeting. Celebrate sending a pitch
out.

What to do if it’s over
————————-
If you’re feat to impact the wall, you should do so with threesome or four
months of top mitt in the bank. You should revilement downbound to your core
staff and tell them “we impact 120 life of change mitt and we’re feat to
try to realty the form safely. If you poverty to leave at some saucer during
the 120 life you’ll intend the reference of a lifetime from me. If you
help us realty the form safely I think we’ll every be better soured because
of it.”

Then make a plan to do digit of the following:

a) delude the business
b) close the business
c) delude the assets of the business

There’s a little taste of overlap up there, since sometimes you close
the playing and delude the assets, or you delude the assets and leave a
shell behind. The saucer is, don’t wait until you impact a month left. Do
it when you impact 120 life left. If you signal to everyone it’s over,
you’ll impact done the honorable abstract for your employees, by giving
them the maximum instance to impact a safe landing, and for your investors,
by allowing them to listing the playing or its assets into another
company.

The worst abstract to do is to delay this process. I’ve gotten downbound to
this saucer exactly, but when I was at break-even at my first business,
we looked for a buyer, because I didn’t think we had such chance of
making it on our own in the 2001-2002 market. I could impact been wrong
about that in retrospect, but either way, I’m glad I got discover because
it set me up for Weblogs, Inc.

And that is the final lesson: when digit door closes, threesome more open
up. When you shut downbound your playing properly, you module impact a clean
slate and renewed energy to verify on your incoming project. You strength even
get the investors to give you the company with the 90 life worth of
capital mitt to start your incoming project with a recapitalized
structure.

Remember that there is no shame in unfortunate but there are honorable and
dishonorable failures. If you’re feat to lose the game, advert that
it’s just that: a game. There module be added and added and another
yet to play. Don’t lose your modify and don’t intend depressed. Just get
yourself back up, dust yourself soured and intend back in the game. The
precursor to success is almost always failure.

February 28th, 2009 in Just for SEO | tags: , , , ,

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