

Ask HN: Advice for when a startup goes south - sinkingshipmate

hi -- throwaway account here for anonymity -- I am currently a technical founder at a startup, and we have about 2-3 months of cash in the bank.  I personally think I should go down with the ship as they say, but I wanted to get some advice for how to handle the end once it comes.<p>For background, we&#x27;ve raised under 5 million and have between 10-15 employees.  We are doing b-to-b and if we die one reason will be that we are in the enterprise valley of death.<p>I enjoyed the experience, learned a ton and would even like to try it again someday, and we are going to fight tooth and nail to stay airborne, but its going to be tight.<p>My question is, there is a lot of advice out there for how to get funding, how to succeed, but not as much for how to fail.  What is the best way to handle this so that I minimize damage to my career and reputation?  When should employees be told of the impending crash?<p>We are going to try and raise, actually do have a compelling story and have built a great team and product, but enterprise sales is a slog.<p>thanks for any advice.
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il
The following may or may not apply to your specific situation, but this is
what I would be thinking in your case. You have two options: A. Accept
failure, fold the company now, return remaining investor funds and get a job.

B. Do whatever it takes to get profitable in the next 60 days.

This is a possible game plan for option B.

1\. If you're doing enterprise sales, your problem is likely as much about
cash flow as it is revenue. Collect as much cash as you can now. Get customers
paying monthly/quarterly to pay annually. Make big prospects an offer they
can't refuse to prepay in advance.

2\. Get revenue any way you can. Become a consulting company. Do things that
don't scale. Sublet your office. Hold events at your office and sell tickets.
Sell some Aeron chairs. Just get some more cash coming in.

3\. Cut costs ruthlessly. With 2-3 months left, there is no way you should
have 10-15 employees. Assume you have 3 months left to live. Do you really
need all of them that badly? It will be tough and heartbreaking to let people
go, but it's better to let half go with warning than to have everyone find out
they're not getting paid a couple months down the line. Cut benefits
immediately. Yes it will be tough and unfair, yes it will hurt morale, but
you're at the end of the line. Do it. 3 months of runway with 15 people could
become a year of runway with 3 people.

4\. Mine your CRM and personal network for leads. Strip mine it for whatever
value it has left. From now on, everyone on the team is spending at least 30%
of their time on the phone with customers. Either you get some sales, or you
get some great feedback about customer pain points and problems you can use
for your next effort. Stop coding. This is one problem you won't be able to
code your way out of.

5\. Unless you have amazing revenue traction, forget about raising more money.
The one thing VCs hate most is a rock that is rolling downhill. Fundraising
will be a fatal distraction. Instead, go back to your bootstrapping roots and
do whatever it takes to get profitable now. Exception: Your current investors
may have some capital in reserve to support you. Ask them for it. If they
don't re-up, your fundraising prospects are good as dead.

Feel free to shoot me an email with more specifics, happy to give other advice
if you think it's useful: ilya [at] mixrank.com.

~~~
sinkingshipmate
Thank you for the thoughtful reply. I will definitely consider taking some of
the revenue generating steps you suggested.

We have internally been looking at what a shell team looks like for Plan B and
when we'd need to start throwing the chairs out of the plane but also had been
trying to consider the signal that sends to investors. We are launching a new
sales effort in the next week and there is a chance it could prove promising,
so Plan C is bet the rest of the company on it. We have been upfront with
current investors and they don't want their money back, they want us to keep
it rolling, but the ride is about to get bumpy.

------
alain94040
_What is the best way to handle this so that I minimize damage to my career
and reputation?_

I must say, after reading the introduction, that was not the question I was
expecting.

My advice is simple: do the right thing for others. Treat them well. That
includes making sure money owed to employees is paid. People get enough notice
to fall back on their feet. You should have been transparent with them already
from the beginning of the startup, so they should all know that cash is very
tight. Don't just tell them 2 weeks before the day you lay them off.

If you treat others well, you'll be fine. Silcion Valley is a very small
world.

On the other hand, if your only concern is your own career, maybe your current
employees already know your true nature. Hard to know either way.

~~~
sinkingshipmate
Thank you for the reply. My career is not my only concern, but one of the
things I have to consider if we need to wind this down.

The stinging nature of your impression of me for asking it carries its own
lesson.

------
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~~~
sinkingshipmate
hi -- thank you for posting this! I may take you up on the offer if our final
push doesn't prove successful, sounds like a great place to work.

------
throwaway420
> What is the best way to handle this so that I minimize damage to my career
> and reputation?

Is this really a thing? It's expected that ~99% of startups ultimately die. I
wouldn't hold it against somebody for trying and failing.

> When should employees be told of the impending crash?

As soon as possible. Some of them might be planning making babies, buying
houses, cars, etc. If they have no idea how you're doing, they could make big
purchases that put them in a tough spot later on if they're suddenly let go
with no warning.

~~~
sinkingshipmate
Thank you for the reply, it helps to put myself in their shoes.

------
redtexture
Call it ten weeks.

What is the absolute minimum to get income in the door, and then scale down to
that to extend the opportunity to find that income. Get to that number as soon
as possible.

Alternatively scale your staffing costs and effort down starting in two weeks,
dropping two employees a week, in an effort to extend your project's life.

Tell everyone on staff what is going on, if it is not already obvious, so they
can make alternative life plans starting now, just as you are making such
plans now. Admit the possibility of your project's failure.

Your employees may be your future collaborators, and your future partners.
Treat your community well, so that you may continue to participate in it in
coming months and years.

~~~
sinkingshipmate
Thank you for the reply. We are in the midst of planning a last assault on the
prize, and will be sure to give everyone fair warning of what is at stake.

------
ig1
The important thing is making sure your employees get looked after. Make sure
they get paid before any other expenses and do whatever you can to help them
transition.

One option is to look for an acquihire of the business, speak to your
investors/network/competitors and see if there's any interest in picking up
the business. You won't get much out of it financially, but it'll help your
employees.

~~~
sinkingshipmate
Thanks for writing and you make a good point. We do have some relationships
which could result in acqui-hire and will consider that to be the proverbial
corn field to try and crash-land the plane in.

------
krmmalik
Do you still need help with this? I'm a start-up mentor. I may be able to
help. If I can't i'll be able to refer you to someone who can.

You can arrange a free call with me at:

[https://clarity.fm/khurammalik](https://clarity.fm/khurammalik)

~~~
sinkingshipmate
Thank you for the offer. We are about to launch a glorious final assault, and
if I may I'd like to defer and take you up on it when we get a few more data
points.

