Think starting a business is stressful? Try shutting one down.
If you think it’s hard to get a new business off the ground, try shutting a few down. That’s serious stress.
If there’s a lonelier and more depressing spot for an entrepreneur to be in, I can’t imagine what it would be. There’s rarely anyone that you can talk to honestly about the prospect of closing your company. Even your banker and your attorney will start to turn a little green around the gills and get that slightly vacant look in their eyes when they learn they might not get paid.
This kind of situation is going to be a fact of life for the next year or two, as more start-ups run fail to raise their next round of financing. It’s going to become a front-and-center concern for everyone who’s active in early-stage investments.
So get ready. When it happens to you, don’t start thinking that people are against you or out to get you. Try to remember that they’re much more interested in looking out for themselves than they are in going out on a limb to save your bacon. As they like to say, it’s not personal. It’s just business.
Still, you're the one who sits up at night wondering when to pull the plug. The sense of isolation and abandonment you feel is made worse by the things we rarely think about in the rush of building a business.
Nobody Tells Ya Nothin’
While there’s a vast amount that has been written about launching a business, there’s almost nothing on what to do when your business is headed south. People are fond of saying that if you want to be there at the landing, you’ve got to be there from the launch. But the truth is that you’re largely on your own when things go wrong. Plan B’s are generally okay. No one wants to hear about Plan F.
Investors and advisors who might be able to give you some guidance are quick to jump ship when your deal gets in trouble and the funding starts to run out. Experienced entrepreneurs will tell you that this is just another part of the process -- that being left in the lurch comes with the territory. That doesn’t provide much comfort when you’re in the creditors’ cross-hairs.
The Pendulum Swings Both Ways
When you’re a star, everybody takes your calls and wants to be your best buddy. When a company or deal is moving sideways or backwards, everyone quickly seems to have better things to do. Venture capitalists call these companies “the living dead” and can’t wait to move on to the next big thing.
The attitude is, “Anything that isn’t a clear and obvious winner is a loser.” When things get really rough, your partners, managers and best employees will, by and large, give you a better shake than outsiders. But they too have families, obligations and futures that they need to be attentive to. It’s the most qualified who quickly learn that they have other options, and they’re more likely to leave than the rest of the team.
Don’t worry about parting with hard-to-find, terrifically talented people. Here’s a little secret - save your business first, then restock your larder. Great talent is attracted far more by the opportunity to solve important problems and by demonstrable unmet demand for the business’s offerings than by peanuts, perks and promises.
Tune the Team for Tough Times
There’s an old football rule: If you want to win consistently, you play your best 11 (the most effective and cohesive team) and not your 11 best (the best individual performers).
When you’re in trouble and picking the people to keep, this is a critical concern and often a very tough call. You may have to fire your second-best salesman to pay the guy who keeps the servers humming. Figure out which functions are crucial to enabling the stripped-down business to still function and have a shot at success, and go with the people that can make that happen.
Kidding Yourself is Not a Competitive Advantage in a Crisis
One of the reasons young entrepreneurs succeed is that they don’t know what they can't do. They also refuse to allow their actions to be constrained by the limitations of others. In this context, their ignorance and abundant confidence is a competitive advantage.
But the world of counselors, creditors, and courts, combined with the constraints of a cash crunch, isn’t a place of unplowed new ground. There are painful rules that govern this environment, and they’re expressly designed to limit flexibility, restrict movement, and slow everything down. All the confidence in the world won’t make up for a lack of cash.
Entrepreneurs are Super Superstitious
Forget your WPO & YPO forums; strategy seminars and trade shows; and all those other “helpful” resources for a while. When you're in trouble, these kinds of activities are wastes of precious time. They won’t help because fear of failure is highly contagious. Being honest and vulnerable doesn’t encourage other entrepreneurs to share. It tends to make them shut down and disappear. Even the people who have been your close business associates for years aren’t going to help you over these hurdles. The sooner you realize this, the more time you’ll save and the less disappointed you’ll be in your buddies.
HOWARD A. TULLMAN is the CEO of 1871 – Where Digital Startups Get Their Start and the General Managing Partner of G2T3V, LLC and of Chicago High Tech Investment Partners. He is a member of the Chicago NEXT & Cultural Affairs Councils and the Illinois Innovation & Arts Councils; an adjunct professor at Kellogg; and an advisor to many start-ups. He is the former Chairman and CEO of Tribeca Flashpoint Media Arts Academy. Over the last 45 years, he has successfully founded more than a dozen high-tech companies. @tullman @tullman