How to Survive Your Startup’s Near-Death Experience

Three veteran entrepreneurs share their best advice on how to avoid the startup death trap.
August 23, 2012

Recently, I enjoyed dinner in Durham, NC, with Mark Williams, founder of Modality, (a mobile tech firm acquired by Epocrates in 2010), and another friend, Chris Holden, of Court Square Ventures, who invests in and advises digital media startups. Between the three of us, we have seen and experienced a lot of startup roller coaster rides. We talked about the highs of the entrepreneurial journey, and also spent plenty of time talking about the lows.

I remember having a conversation with Mark in 2008, just before the release of his first iPhone products. He had invested two-million dollars and many 80-hour work-weeks over two years, and was nearly out of cash. “If we don’t get a good bump from these new products,” he said, “we might need to talk about closing this thing down.” Two weeks later, I got a text from Mark saying his new products had grossed over a half-million dollars in their first month. Modality had not only dodged a dangerous blow, but was suddenly positioned as a major force in the emerging mobile learning space.

Startup life can feel like one crisis after another, and unfortunately, too many ventures fall prey to a fatal early misstep. Before changing the world, smart founders know they need to focus on near-term viability—how to simply get the venture off the ground?

Here are a few thoughts on overcoming the near-death experiences all-too-common in the early stage.

Build your cushion. The most obvious and immediate cause of startup death is running out of money. Some experts caution against raising too much capital, fearing loss of control, or the comfort and complacency that can come with money. But, assuming you are a self-driven founder and you know what you’re doing, the healthier your capital reserves, the more likely you are to succeed (keep in mind that having access to capital does not equate to spending it). So, develop a sober, clear-headed estimate of how much funding your startup will require, then double it (at least).

Master cash-flow thinking. Sales will become the life-blood of your growing business. But sales don’t always generate cash. Especially in the early stage, it may cost you more to deliver your product than your customers are paying for it.  Or the timing of payments may lag far behind your product costs. The solution is to learn to think in terms of cash dynamics associated with every key decision you make as a founder. Cash-flow thinking means that you are continually aware of three things: first, your current cash balance; second, the timing and amount of future inflows; and third, the timing and amount of future outflows. Do you know where your cash balance will be three months from now? 6 months from now?  If not, be sure someone that you trust is tracking this.

If you are facing a crisis, treat it like one. Too many founding teams live in feel-good bubbles that promote the celebration of good news and avoidance of bad news. Founding teams that quickly admit when something is amiss can usually mobilize and take valuable action to sail past emerging danger. Gain agreement among your team that you won’t shy away from uncomfortable issues or awkward conversations. Deal directly with any undiscussables that are undermining your startup’s health.

Ask for help. When crisis hits, don’t let your pride stop you from reaching out to anyone who can help you. Some founding teams are especially wary of sharing bad news with investors, who are often in the best position to provide assistance. “Founders don’t want to go back to their investors with anything that makes it look like things are shaky underfoot,” says Chris Holden, “but in reality, what the investor craves is the opposite: Cause you know that things are going to be shaky underfoot and you’re on shifting sands always. And you want to see the reaction.”

Take care of yourself. Managing yourself is a key to having the staying power necessary to startup success. Annette Giacomazzi, founder of CastCoverz, learned she had breast cancer in 2009, just after splitting with her co-founder and finding her first batch of products to be unsellable. Amid these crises, Giacomazzi consciously slowed down and nurtured herself. She managed her anxiety by rising early each morning to pray and read inspirational material. She ate dinner with her family nightly, and stuck to a regimen of going to bed early each night and taking regular naps. Today she is cancer-free and her business is generating “mid-six figures” in annual revenue.

John Bradberry is the CEO of ReadyFounder Services and author of 6 Secrets to Startup Success (AMACOM, 2011). He helps entrepreneurs and their ventures improve performance and achieve healthy growth.

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