The 5 Shoulda’s: Things to Ask Before Your Startup Goes Belly-Up

October 14, 2011

1:00 pm

During my years as a turn-around guy, I’ve boarded many an un-seaworthy, leaky vessel.  This has afforded me the opportunity to be responsible for more sunken ships than the entire WWII German u-boat fleet. You see, sometimes the boat comes about when you push the tiller, and other times it continues full speed ahead into the iceberg.

When things start whirl-pooling down, the world starts spinning out of control, and life becomes so frenetic that simple solutions evade even the best of skippers.  When your boat is sinking, when your cash runway will keep you afloat less time than it takes for a New York City cabdriver to honk in outrage after a traffic light turns green…trust me, you’ll miss something.

Years after the failure, it will haunt you.  People will comment on the red mark on your forehead.  You know, the residue from the years of slapping yourself on the head saying, “I shoulda tried this” or “I shoulda tried that.”

In order to avoid “Red Forehead Syndrome,”  I’d recommend you have a plan in case of possible failure.  You know, something that you can place in the glass container with a hammer and sign that says, “Break glass in case of emergency.”  Something ready made and ready to go. A plan to keep you focused on rescue. A plan that is prepared when heads are clear, minds are rational, and there is time to think and breathe. A plan that is executable during chaos.

Start by asking yourself, “What is the one thing that can’t happen, yet if it did, would change everything?”

Here are 5 things to ask before it’s too late to correct the course and steer the ship away from rocky shoals.

1. I Shoulda Seen That Coming – Ask yourself and your team how you would put yourself out of business. Gillette does this all the time.  They don’t just sit on the best safety razor money can buy, they create a better razor every year. They compete against themselves.  Compete against yourself, and beat yourself before someone else does.

2. Where Did All The Cash Go – Did you create a cost structure based on a business model that can be disrupted?  Opulent offices, over-generous perks, and huge bonus expectations are fine ways to motivate staff…but there are better and cheaper ways.  Your cost structure may support your current business model, but I’m going to put you out of business by supplying the same service at a better value, and you’re going to be handcuffed by your overhead.

3. Was I Paranoid Enough – The answer is no.  You can’t be rich enough, thin enough, or, as a CEO, paranoid enough.  Walk the delicate line between making your team feel secure regarding the company and their futures and understanding that shit happens.  Don’t scare your people too much (a little fear is healthy), but make sure they understand that the current state is the current state.  IBM was king before Microsoft was king before Google was king before….

4. Did I Get the Most Out of My Team – First round minor layoffs make companies stronger and rarely cut to the bone.  That’s an indictment of management.  If you could lose 10% of your staff with little sacrifice to execution, then have your layoff now.  How many C-players are working for you right now who will never be better than C? Make your C-players available to the industry now, and replace them with the A players that will make a difference.

How many people do you have doing things that could be done better and at less cost if it was outsourced?  For instance, I was brought into a company that had burned through $70M of financing in 4 years. The first person I got rid of on the first day of the job was the company masseuse.  I had no idea if she was an A-player masseuse, but I was pretty sure we were a software company and not a spa, and I was confident that if we ever really needed a masseuse we could just outsource one.

5. Who Hates My Top Competitor More Than I – The enemy of your enemy is your friend.  Have you talked to your friends lately?  What would happen if your product or services fell into the hand of the market gorilla in your industry? Would it hurt the other chimps? Maybe the number 2 chimp should make a little investment in your company to ensure that your weapons don’t fall into the wrong hands.

So when are you going to get your team together for an off-site to ensure that if your company fails, there are no shoulda’s left on the table?  Get it done now, and if you need a facilitator for the process, get one.  It’s money well spent.

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Glen Hellman (@glehel), is an angel investor, serial entrepreneur, and works for venture capitalists as a turn-around specialist. He is the Chief Entrepreneureator at Driven Forward LLC, frequently muses on his blog, Forward Thinking, and works with entrepreneurs to help them figure out what to do and get them to do it.

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