How to Come Back From a Cliffhanger
ProMedex Inc., which I co-founded in 1996 with Pieter Muntendam, M.D., was a disease-management and health-care informatics company that grew its sales to $11 million by its third year. Pieter served as CEO and president, and I was the head of program development, then of operations and, ultimately, of sales and marketing. We raised $7 million in venture capital in two rounds of funding, then began looking for a third round to take us to an IPO.
Our fund-raising efforts led us to InLight Inc., a patient-education company with aspirations to become a dot-com. ProMedex had products, customers and revenues. InLight had a star-studded board of directors? although none had our entrepreneurial experience? and a strategic investor that had committed $32 million to the enterprise. We needed capital, and InLight needed substance. So, in March 2000, the companies merged in a transaction that gave our business a $110-million valuation. We thought we had finally arrived.
Little did we know! The combined company couldn't define its core business, and no one was minding the store. By August 2000, InLight was insolvent and out of business. The board and CEO wanted to shut ProMedex down, too, but we believed we could keep it alive while we looked for a buyer. And we were right: In October 2000, ProMedex was sold again, this time to Landacorp, a publicly traded health-care technology company. Throughout the intervening 10 weeks, our management team successfully navigated a financial and organizational crisis that is best described as Byzantine.
No Time for Regrets
Pieter Muntendam, as a member of the board, should have had an inkling of what was going on, but there was no warning. The directors had not been told that the $32-million investor had defected. Characteristically, Pieter made a quick decision: We were going to find someone to buy our piece of the company.
Selling the company? quickly? was a huge job. We had to find and woo prospective buyers. We had to work with a long parade of due-diligence teams. We had to manage a hostile board of directors and a panic-stricken bank. We had to negotiate complex purchase agreements with multiple parties. In the meantime, we had to continue serving our customers by maintaining operations. We had to micro-manage our finances in order to make payroll in the interim. We had to manage jittery vendors. And, we had to keep it all in sync.
Division of Labor Is Critical
Next morning, the six-person ProMedex management team held the first of countless meetings to strategize. We functioned like a textbook example of a team: common purpose, tightly coordinated and trusting one another, gathering a couple of times each day for status reports and decision-making. The work would never have gotten done otherwise.
Pieter's leadership set a direction for the company and then steered us to the conclusion. He made quick, tough, informed decisions. He showed his confidence in his employees, his management team and himself, inspiring everyone. He worked without ceasing until the crisis was resolved.
Senior management divided up the work and then stayed out of each other's way. We had no financial manager? that had been delegated to headquarters after the merger. Fortunately, our vice-president of information technology was a perfectionist about budgeting and had worked as a financial analyst. He and the head of operations teamed up as co-comptrollers (we called them the Co-Cos). Their job was to count the pennies (literally), prioritize expenditures, manage vendor relations and cycle through countless cash-flow projections. They also supplied all the financial information required for due diligence.
The head of customer operations kept the rest of the company on course throughout the crisis and insulated the customers from it. The human-resources director, an attorney, immersed herself in bankruptcy law, M&A law and all the nuances of letters of intent, contracts and ownership issues. A shrewd negotiator, she was one of our key strategists as well. I kept one hand in client sales, lest our pipeline dry up, and worked on selling the company with the other. Pieter managed key relationships, led the negotiations and directed traffic.
What to Tell Whom
In any crisis, you have to figure out what to communicate, to which people and how. As managers, we were honest with our employees throughout the crisis weeks. Without sharing all the gory details, we told them what had happened, what our plans were and how things were progressing. Everyone in our main location gathered for a briefing twice a week. Those who worked in other locations got the same information by e-mail. Pieter would give a factual account of developments, then I would do some cheerleading. We knew there was a risk of worrying employees and losing some, but rumor and innuendo would have the same effect and distract them even more. It was worth the risk.