Belt-Tightening Tips for Start-ups (Part II of II)

25 Nov
Belt-tightening tips must be accompanied by a growth footing

Belt-tightening tips must eventually be accompanied by a growth footing

In my last post, I offered five fairly straightforward tips for young companies to help weather the current market downturn. Because all lists must somehow number to ten, let me add five more. As in the first installment, some are pretty obvious and intuitive; others less so. Of course, executing perfectly on all ten suggestions is no insulation from failure. That said, incorporating even a couple into a company’s modus operandi can affect a variety of other changes in the company’s DNA that, at a macro level, can profoundly impact whether a struggling company can navigate these troubles waters and emerge on the other side a stronger, even dominant market player, or whether they will be tossed upon the rocks. With that in mind…

6. Reach out to Stakeholders.Human nature being what it is, when many of us encounter challenging times in our careers, in our businesses, or in our personal lives, we have a tendency to hunker down, put up walls, and isolate ourselves. This probably worked fine in our youth when the proper approach to preparing for a final exam or for drafting a term paper was to cloister ourselves in our bedrooms, free from temptations and distractions, and focus on the task at hand. As adults, however, this tendency can be disastrous. A time of crisis often demands that we reach out to others for advice, for networking, for sharing ideas, and even for aid and comfort. For stakeholders — be they investors, employees, or advisors –, there is nothing more troubling than company management being less than forthcoming about the organization’s financial and operating condition during a crisis. In the absence of clear and regular communication between CEOs and stakeholders, little things can get blown out of proportion or misinterpreted. The notion some CEOs have that approaching investors for guidance or when one is troubled is somehow a sign of weakness is nonsense. Now is the time to re-examine how you’ve been communicating to stakeholders and to make changes if there have been issues in the past.  The only thing worse than delivering bad news to a board of directors is delivering that news late when the issue is a fait accompli and the board is blindsided and can no longer really help correct the problem.

7. Re-open your old agreements. Did you sign a $6/sq ft lease last year when the market was frothy, but now the market rate for equivalent space is probably closer to $4? Call for a meeting with your landlord or commercial real estate broker and push for a rent reduction. Are they required to work with you on a new lease rate? Of course not, but they are business people and they’ll probably realize that it’s usually a lot cheaper to lower the rental rate than have a tenant break their lease or go out of business and have the space sit vacant for months on end. Do the same with any contractors or consultants where you think the softening economy might give you leverage for better terms.

8. Horde your cash; Use equity whenever possible. If you haven’t already done so, ask if your law firm will defer fees in part or in whole during this down cycle. If they won’t, consider changing your legal counsel – it could be that important! Do the same with any partnership or other service provider agreements you might have – PR firms, ad agencies, etc. Money is a proxy for time; the more cash you can avoid paying out, the more months you add to your company’s lifeline, and the longer your company will have to see its plans come to fruition and for you to turn things around. Now is the time to horde cash and pay out equity to any vendors or partners that are willing to accept it. Such arrangements also have the added benefit of aligning incentives all around. Everyone will have direct skin in the game in your company’s success. That gets people motivated in a way a cash-based fee arrangement never does.

9. Don’t Shoot your Golden Geese. In a downturn, the tendency is to give everything a budgetary haircut. Unfortunately, this can be done indiscriminately and can result in key functions critical to sales and revenue (your company’s lifeblood) being hobbled. Look closely at what directly interfaces with customers and partners and make sure those things remain as intact and high-quality as possible while you cut just about everything else. It’s much better to trade your high-end office furniture for used Salvation Army desks if it means your team can still afford to appear at that key trade show. Customers will almost never see your office. It is far better to move to a smaller space in a less desirable part of town if it means it will free up enough capital to keep on two rainmakers that are getting you intros to key partners. The right alliances could make or break your company. The talented BD or Corp Dev person that can bring you those relationships can be worth his or her weight in gold.

10. Pick your metrics, pick your plan, and stick with it.As the cliche goes, without a roadmap, will you know how to get where you’re going, or even that you are there when you arrive? If you’re doing things properly in concert with these ten tips, you have already assembled the key managers and stakeholders in your company and have actively engaged them in helping develop a strategy for how to manage through the current cycle. Now what is left is deciding what key metrics to focus on in order to determine whether your strategy is succeeding. Each industry has different indicators; find out what yours are – is it traffic? unique visitors? click-throughs? sales? RFPs? Whatever the key metrics are, define them in such a way that you can measure in real-time how things are tracking so adjustments can be made on the fly if things are under-performing. Also, once a plan is developed, make sure it has time to succeed, Don’t be one of those companies we all read about that’s on their fourth turnaround plan in as many months (and sometimes their fourth CEO also.) While it’s a serious mistake to hold on to a strategy that is not working, embarking on new plans too quickly can be just as damaging to morale, stability and credibility with investors.

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