How to save a struggling start-up company

Many startups go through a period in the months before they die: While banks still have large amounts of cash, they suffer huge losses every month, and revenue growth is either completely stagnant or very small. In general, the company still has a 6-month survival period. Or, more bluntly, they will go bankrupt in 6 months. They hope to avoid bankruptcy by raising more money to investors.

The last sentence is the most fatal problem.

Entrepreneurs tend to delude themselves into thinking that investors are also willing to offer themselves additional funding. But in reality, they don't have enough capital. It's hard to convince investors when it comes to financing for the first time, but entrepreneurs are anticipating this. What they do not know is that the second financing will be hit by three forces:

1, the company now spends more than the first time financing.

2. Investors have higher standards for companies that have already been financed.

3. The company has begun to show signs of failure. When it was first financed, it was neither successful nor failed, and it was too early to ask the question. Now, investors are likely to ask this question, and the default answer is "failure", because this is the default result of the current situation.

I refer to the situation I described in the first paragraph as a "lethal squeeze" (Fatal pinch). I've never liked to make words, but such a title might help founders to realize when they were in this state faster.

The danger of "lethal squeezing" stems from its self-reinforcing self. The founders would overestimate their ability to raise more money, thereby neglecting their profitability and further reducing their financing opportunities.

Now you know what "fatal squeeze" means. So how should this happen? Obviously, it's best to avoid this. Y Combinator always say to the entrepreneur that each financing should be treated as the last financing. Because this self-reinforcing trait can also work in the opposite direction: the less financing you need, the easier it is to get financing.

What if you are already in the "fatal squeeze"? The first step is to reassess the possibility of refinancing. I can tell you like a prophet now. Result: the probability is zero.

Therefore, in this state of the enterprise still has three options: can close down, can open source, also can throttle.

If you decide now that whatever you are doing will fail in the end, you should shut down. After that, you can at least return the rest of the money to investors and save months of futile effort.

But few companies are going to get lost, I just offer a choice to admit that you've given up.

If you don't want to close down, you'll have to cut revenue. For most startups, costs come from people, and lower costs mean layoffs. Layoffs are often tough decisions, but in some cases they are not: that is when you know someone should be cut, but you refuse to accept reality. If so, now is the time to end it.

If it makes you profitable, or makes the rest of your money profitable, you're not going to be in the immediate danger.

So, you have three choices: fire the good guys, pay off some people or everyone for a while, or increase your income.

A pay cut is a less effective option, and will not work unless the problem is not too serious. If your current trajectory is not profitable, but you can go through a certain amount of pay cuts, you may be able to take this action. Otherwise, you may just be delaying the problem, and for those of you who are getting a cut, it will be obvious.

So there are two choices left: Fire the good guys and make more money. In balancing these two scenarios, always keep in mind the ultimate goal: to be a successful product company with a product that many people use.

If the root cause of the problem is excessive recruitment, it should be skewed towards layoffs. If you haven't figured out what you're going to do, you're in a hurry to recruit 15 people and you're doomed to create a bad company. You have to figure out what your goals are, and if you recruit less than 15 people, it's probably easier to do that. In addition, no matter what your ultimate goal is, these 15 people are not necessarily what you need. So perhaps it should be scaled back to the direction of growth. After all, if you go bankrupt with these 15 people, it won't do them any good. They will eventually lose their jobs and will waste a lot of time in the doomed company.

However, if you do not have many people, it is better to concentrate on making more money. It's easy to persuade a startup to make more money, but it's easier said than done. Usually, no matter what the product is, the start-up company will spare no effort to sell it externally. But what I'm talking about is not trying to make more money, but trying different ways to make money. For example, if you have only one person responsible for sales and others are responsible for writing code, try to get everyone involved in the sale. If the company goes bankrupt, what's the use of so much code? If you have to write code to complete a transaction, continue; Keep in mind that you can only focus on projects that can generate the most revenue in the shortest amount of time.

A different way to generate revenue is to sell different products, especially in the form of more "consultative" work. The reason why I say "consultative" is that there is a "landslide fallacy" in moving from a product business to a purely consulting business, and you don't have to take that risk until you start offering products that really attract customers. While your product may not be attractive enough, if you're a startup, your programmers are usually much better than the ones your customers have or can recruit. Or maybe you have expertise in new areas that they don't understand. So if you just slightly change the way you sell, from "Do you want to buy our products?" into "What do you spend so much money hoping to get?" You may suddenly find that making money from customers is a lot easier than it used to be.

In doing so you must be mercenary: Your goal now is to save your company from the brink of death, so ask your customers to pay more and pay quickly. Be sure to spare no effort to avoid the counseling trap. Ideally, it might be a derivative version of your product that is tailored to your customers, but if you don't, you can only sell the product directly. You must keep your intellectual property and don't pay by the hour.

In the best of circumstances, this kind of consulting work may not only help you survive, but may also be an unexpected turning point for your company. Do not expect this to happen, but when you study the needs of individual users, remember to stare at the eyes of the narrow but promising things.

The need for custom work is usually huge, and unless you're really incompetent, you can certainly survive this pattern. But I don't use the word "landslide fallacy" for no reason: a customer's insatiable appetite for bespoke products will push you to the bottom. So, while you may well survive, the question now becomes: How to survive with minimal cost and minimal disruption.

Fortunately, many successful startups have experienced this near-death sensation and eventually prospered. You just need to be aware of what's going on when you get yourself into this dying situation. If you are stuck in a "lethal squeeze", then face it bravely.