Cash-Strapped and Nearing Collapse: 4 Survival Tips
BY Larry Kim
Some of the greatest start-ups found success only after surviving a near-death moment. You can too. Here's how to get through it.
Everyone loves a good story about a successful tech start-up and that particularly tenacious entrepreneur who perseveres and makes good in an extremely competitive space. However, a great deal of these success stories come only after the entrepreneurs make it through at least one threat of utter collapse.
Recently I had a chance to chat with early-stage tech start-up founders and entrepreneurs around Boston about their growing pains and challenges. They’re companies operating in hot technology spaces and who have all made decent progress building their business, but they’re running short on cash.
It’s a common thread amongst start-ups of all types, across sectors, and if that sounds like you, or a business you know, consider these four tips as you ponder what to do next.
1. Embrace your discomfort.
Necessity is the mother of invention. The stress in finding your company on the brink of collapse may be the catalyst for a much-needed “Aha!” moment, allowing you to tweak your products and business model to be more successful. Smooth sailing can breed complacency; it's rarely the best environment for innovation.
Call me extra lucky, but my own start-up, WordStream, has been on the brink of collapse not once, but twice! For example, in my first year of operation, I lost a major customer who accounted for the lion’s share of our company revenue. With just enough cash on hand to survive two months, we had to close a round of investor financing fast, or die.
Was it stressful? Of course. In fact, I did have to consider cutting losses and walking away. Yet it pushed us to make changes in our strategy to meet our goals. This year, WordStream ranked #184 on the Inc. 5000 list of fastest growing companies. I can’t help but think what a relief it was that we pushed through and kept going.
2. Be (somewhat) delusional.
The tech start-up, venture capital, angel investing game is one in which you basically need to entice people to invest in your company, based on a vision for a company that doesn’t yet exist. Even those who’ve played the game before can find the funding process a bit manic.
Savvy entrepreneurs can get multi-million dollar valuations in Series A venture capital rounds, despite very little revenue and a half-baked product. Those investments are absolutely necessary to bring that vision to reality, yet entrepreneurs under extreme financial duress may fall down at self-promotion and selling the idea.
Always allow yourself to express the passion for your product as it would be if you exceeded all expectations. If you can’t get crazy about your idea, why would an investor?
3. Keep your doubts to yourself.
I was recently chatting with a struggling company founder when he began dreaming out loud of landing a software engineering job with Google. I get where he was coming from, but to say it was off-putting would be an understatement.
These moments of weakness are par for the course. In fact, if you have no doubts at all, I might worry that you’re missing some key information about your market and company.
However, verbalizing these doubts can be an absolute confidence killer in your company. Cash-strapped entrepreneurs need the unwavering support of investors, staff, and strategic partners alike. Transparency is a very good thing, yet you can communicate your funding issues without instilling fear that you may be having second thoughts or losing faith. In almost all cases, doubts are better kept to yourself.
4. Know when to call the game--and what that actually means.
Does anything suck as much as having to acknowledge defeat? There’s a special sort of crushing pain in having to close the doors on an idea to which you’ve literally committed your time and savings for some period of time.
Yet continuing on a broken path has been the downfall of many an entrepreneur; there is wisdom in knowing when to pull the chute and save yourself. If all of your efforts were for naught and you’re unable to continue the business, cut it loose, but don’t think of this as a failure.
Many uber-successful companies were founded on the backs of a series of failed business ideas by resilient entrepreneurs. Prior to WordStream, I had my own string of failures, like a peer-to-peer file sharing software application that lived a short life and died a horrible death 10 years ago. After admitting defeat, I could have wallowed a while in the bitter sting of having lost all of my money and feeling as though I’d wasted my time.
The great thing about losing everything is that you can’t afford not to keep going. If you have that creativity and drive inherent to start-up founders, you’ll learn to see the failure of one company as the learning ground for the next. Many VCs understand this and see a valuable asset in seasoned entrepreneurs willing to dust themselves off and try again.