Here’s a situation — you’re a startup or company that got off to a great start. You launched your product without any major hitches, maybe got a little funding, and are on an upward trajectory. Perhaps you’re even big and seemingly successful. But the ship is sinking.
It could be that your product isn’t as good as you hoped it would be. It could be that growth isn’t taking place at a rate you’d have hoped. It could be that you have too many people and are feeling bloated. Any number of these factors could be participating in your decline. That isn’t what I’m worried about. The question is, once you’ve established a decline, how do you recover?
The Canonical Answer
We all know the canonical answer to this problem. We need something refreshing. We need something innovative and game changing. We need a leader that can whip us into shape and set us on the right track.
What’s the easiest way to achieve all three of those?
Bring in a messiah.
Messiah: In a business context, the ‘saviour’ is usually a hotshot entrepreneur that can swoop in and boldly rejuvenate a company. Examples include Carly Fiorina, Lee Iacocca, the cast of Shark Tank, Steve Jobs, and so forth…
So what’s the problem with the messiah? Well, it doesn’t actually work.
Studies of various businesses have definitively shown that in most cases, bringing in a superstar is probably the wrong thing to do. There are two reasons for this.
The first is that it’s risky to bring in an outsider. When you bring in an outsider, although you’re bringing in perspective, you’re losing the element of cultural familiarity, and company-specific vision that comes with an insider. And this is pretty critical to keeping the company on the straight and narrow.
The second point to consider is that when you hire a hotshot, it looks great on paper. Your stock price bumps up in the short term. Silicon Valley is raving about the revival of an industry. The media has every eye on you, waiting to triumph your successes, and eviscerate the slightest misstep. That’s a dangerous spot to be in, because it makes you volatile. And when an entire company is on the line, volatility is the last thing you want. Better to keep a low profile and impress people with the minutest of successes.
But what about Steve Jobs?
Fair enough. Steve Jobs is different from the others for multiple reasons. One, he was an insider. He was the core of the company. His coming in didn’t dilute its vision at all, and in fact strengthened it. Secondly, he did what this guide suggests. And that’s even more important than who you are.
So no messiah. What then? Well, hire someone from inside your company if replacing a CEO is a must. Then, there are two lines you want to pursue. The first is survival. The second is improvement.
Surviving
Everybody is a professional entrepreneur.
It’s very easy to, from the comfort of one’s humble abode, comment on businesses that one knows little to nothing about. It’s also very easy to imagine, that in a crisis, the solutions are simple. But it isn’t always about coming up with some bold new idea, and it isn’t always about some fundamental flaw in the core vision or execution of the company. And before you can even think about those issues, you’ve gotta worry about something more pressing.
How does a company die?
This, much like the rest of the essay, is fairly morbid. How does a company die? Think about it. Don’t worry about the series of events leading up to the death of a company. What is the final breath of a company ended by?
It’s one of two things.
Perhaps it simply gives up. Everybody in the company resigns themselves to its impending doom, and the sword is laid down.
The alternative is scarier. The company struggles on, attempting to recover from its failures. Until, at one point it trips and falls to the ground. That trip is spurned by cash, or lack thereof.
Stanford’s Bill Lazier makes a point to stress the importance of cash with this haunting statement —
You can be profitable and bankrupt.
You can be on the recovery, but if you don’t have cash to pay next week’s bills, you’re done. You can never forget that. And to prevent this death from sudden strangulation, you need to accumulate as much cash as you can muster.
Cut jobs. Cut products that are draining you. Collect what you’re owed with ruthlessness. Wherever you can muster it, regain liquidity by making yourself more efficient than you have ever been. It’s a short term solution that will buy you time to focus on the long term.
Improving
The next stage is the one most wantrepreneurs are more familiar with. Figure out what the company is good it. Get even better at that. Figure out why you’re good at it, and translate that to other products and services. Align the company with its vision and focus more on products than the bottom line.
There are a few things to keep in mind when doing this. One is that R&D is important, and it shouldn’t stop. There may be times when you should cut budgets a bit, but they should always be reinstated, because innovation will always win out in the long term.
The second thing to keep in mind is that even though products may be making money, there’s a good chance they’re costing you more in the long run. Be it by restricting people to old or outdated tech, or by cannibalizing sales of your better products.
This isn’t easy either. It requires a keen understanding of the history of a company and its culture. It also requires the ability to guide people into a cohesive direction.
It is, however, much tougher to talk about in a high-level fashion, and so I shall leave it there.
The main takeaway from this post is that when your ship is sinking, you need to focus on two things — the first and most critical is cash, because it buys you time. The second is the drastic improvement of your work. But here’s a question that might motivated inquiries into your current practices — why limit yourself to these only in times of crisis?
