For Your Year-End To-Do List: Write Your Company's Obituary Now
It's disconcerting for entrepreneurs to realize how vulnerable their fledgling businesses are, no matter how great the idea seems or the degree of traction they get in the marketplace. That's essentially what Aaron Schwartz, founder and CEO at Modify Industries, which runs the site Modify Watches, realized and wrote about recently in VentureBeat.
His now three-year-old company makes watches with interchangeable parts and has some 25,000 Facebook fans--but Modify has only six months to live. Without a significant change, even after a first round of funding, the company will be bankrupt in half a year. A very scary thought.
Although some businesses can generate sufficient profits early on to stay relatively safe, many face what is in front of Schwartz: the need to drive up revenue and drive down costs quickly enough to become cash positive before on-hand reserves run out. And, frankly, if that isn't a problem, there are likely others--aggressive moves by a large competitor to stamp you out through legal maneuvers, a sudden disastrous change in a supply chain, the resignation of some critical personnel, or more--that could derail your efforts.
Luckily for Schwartz, a couple of seemingly minor events rubbed his nose into what should be (but seldom is) obvious to entrepreneurs: the sooner you identify a problem, the better a chance you have to avoid its consequences. Here's how he relates the second event, which involved reading about a story of the early days at Intel:
The next week I was reading "Decisive" by Dan and Chip Heath. The authors recount a story about Andy Grove and Gordon Moore at Intel. The two leaders were trying to figure out if Intel should continue focusing on its large legacy business, memory, or instead focus on the small-yet-growing microprocessor business. One day Grove, the president, asked Moore, the chairman and CEO, "If we got kicked out and the board brought in a new CEO, what do you think he would do?" Grove replied that they would get out of memory immediately. As the Heath brothers put it, this was Grove's and Moore's "moment of clarity."
I don't think he actually meant that Grove answered himself, but that is an unimportant error. The critical point to is recognize the dangers that face a company and the actions an experienced executive fresh to the situation and not burdened with past decisions might make.
Knowing What Can Kill You Makes You Stronger
Like Schwartz, now is the time for you to write the pre-mortem of your business. He found some issues that faced his company. The important thing for you is to identify the ones that could scuttle yours.
There is rarely only one danger you face, and yet not all are equal. You want to pick out the top ones. Look for three as a number you can comprehend and easily follow. Take those three dangers and apply an old acting exercise that Constantin Stanislavski called "What If?" Instead of forcing yourself into a different way of thinking, ask what if you were the new head of the company, presented with these three problems, and asked how to ameliorate them.
You're allowed to check with other entrepreneurs, experts, consultants, books, websites, or any other resource you choose. The important thing is to solve these three big problems. Once you have a strategy in place and are making headway, you can consider the next three big problems you must overcome.
By doing so, you take action ahead of when a crisis might occur and strengthen the appropriate parts of your strategy and operations. Do this and the chances of your company ultimately succeeding and thriving go up enormously.
ERIK SHERMAN | Columnist
Erik Sherman's work has appeared in such publications as The Wall Street Journal, The New York Times Magazine, and Fortune. He also blogs for CBS MoneyWatch.