The most difficult thing in this situation is to calm down your own psyche. You will have to manage your anxiety at the same time to avoid being overly pessimistic, while trying not to be unreasonable optimistic. A fine line, however.
First of all, you need to clearly understand how much money you have left and how much time.
Before reading further, be sure to read the contents of the essay "The Last Straw" and "By default dead" or "by default alive" .
If your startup is “dead by default,” then your priority will be to bring the startup back to the default “alive” state as soon as possible. ”The mechanisms here are very simple: either we increase profits, or reduce costs, or do both at the same time.
Counterproductive ideas
Founders can get caught up in a cycle of ideas that creates inaction and inability to fix the situation in which they find themselves.
The following thoughts can be counterproductive:
- "The last straw" is not about me
- If we run out of money, investors will continue to fund us
- If I can't raise additional funds, I'll just sell the startup
- Communication with potential buyers happens one way or another, and everything is not so bad
- If I cut costs, they won't buy us
- If I cut costs, it will demoralize my employees / will be overwhelmed / discouraged / it will undermine the spirit of my employees
- We will not attract new investors if I cut costs
Don't let these ideas be an excuse for keeping you "dead by default."
Realize your negotiating power
What can we take away from this graph?
- Delaying decisive action to cut costs is a bad strategy. Bring yourself to "default live" now .
- From a game theory standpoint, an investor or startup buyer will sit back until you have no funds left. The savvy investor will not say no to you right away, he will keep the question open until you become desperate.
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, « » (cash burn)
If you want to reduce the rate of “burnout”, then the most painless way to do it is to immediately increase profits. I hope you are already working on it.
But what if an immediate significant increase in income that puts you in the “live by default” is not possible? Then cut your costs.
Employee salary costs are the most likely reason for the high rate of burnout. As The Last Stroke says , excess hiring is at the heart of this.
If you decide to cut staff, then it is imperative that you take care of the dismissed employees and be absolutely honest with those who remain. Remember, you need to treat your employees the way you want them to treat you.
The easiest way to do this is to cut back on marketing and PR costs, as well as on occasional ad-hoc expenses such as "goodies" and parties. Do not waste money on this.
Point of no return
So what if you have three months of money left? It is important to honestly accept this fact and prepare to fulfill your obligations, as well as consider the possibility of closing the startup.
As a rule, if funds remain for less than two months, this is already a point of no return. If this happens to you now, you must immediately pay off your employees, pay them severance pay, pay off their obligations, and use the remaining funds to close the startup. If you do not do this, and everything will end up with a lack of funds in the account with unfulfilled obligations (salary, taxes, etc.) - this will be really terrible.
What to keep in mind at this stage:
- If you have reached the point of no return, close your startup.
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If everything went wrong, behave with dignity so that later you will not have to regret anything. Being a founder at a time when a startup is sinking is hard. Seek support and advice wherever you can. Mentors and advisors will help you get through these difficult times. Often the most difficult thing for a founder is admitting defeat. If you are concerned about your reputation, remember that it is just as important to deal well with situations when things are going wrong as well as when things are going great.
In conclusion, if you forget what this article is about, here are its most important thoughts: 1) don't lie to yourself; 2) act quickly and decisively.
If you want to help with translations of useful materials from the YC library, write in a personal, @jethacker cart or mail alexey.stacenko@gmail.com
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