What Happens When Your Business Runs Out of Runway?
I love to fly. No, not in the superhero sense. I'm a pilot. Actually, I'm an entrepreneur who happens to fly planes in his free time (and occasionally for business). The view of the Rocky Mountains from just a few thousand feet up always takes my breath away—and gives me a much-needed break from the hustle and bustle back on the ground.
Flying, to me, also offers a great lesson for anyone running a business, even the non-aviators among us.
You see, before you can get high enough to enjoy those wide-open spaces, you first need to build up enough speed to clear the end of a runway. That seems logical, but it's not always easy. For example, there is an infamous airfield in the town of Telluride, Colorado that literally has cliffs at both ends of its runway. (How's that for an entrepreneurial metaphor!) When you set out down the runway—which sits at an elevation of some 9,000 feet—your only hope is that you've built up enough speed to launch your craft into the air well before you meet the cliff.
But what if you're not going as fast as you need to be? What if it looks like you might meet that “cliff" before you've built enough momentum? How do you make the decision to hit the throttle—or instead hit the brakes and stop in time?
I am, of course, talking as much about running a business as flying planes. What goes through your mind when it looks like you're not going fast enough—say, having enough cash flow to cover expenses—to take off before reaching a cliff?
I actually faced this very scenario early on with my company, TSheets. We were, admittedly, struggling—and lots of people, including some of our early stage team members, were forecasting our demise. One day, amidst all this negativity (much of it public), I grabbed my co-founder and we went outside, lay down on the grass and stared up at the sky. We talked about how we had more or less reached rock bottom: We weren't generating enough revenue to keep things going. We couldn't pay the people who needed to be paid. We weren't even clear on our product or the direction of the company. The cliff was near. We had to ask ourselves whether it was time to hit the brakes and shut the whole thing down, or keep pushing the throttle and hope we could still take off.
We agreed to sleep on it and make a decision in the morning. (Thankfully, a luxury that business owners have over pilots.) When we arrived at our office the next day, we looked at each other and nodded. We both still believed. We believed that we had it in us to clear the cliff. The word “quit" wasn't about to enter our vocabulary and wouldn't from that day forward. What we did instead was talk about ways that we could get our business moving faster. What did we need to do to get airborne?
We tossed everything that might be weighing us down. I had fortuitously read the book The Lean Startup, which talks about leveraging analytics to make your decisions rather than your gut. We then began testing smaller changes to our product to see how customers reacted before making bigger investments that we didn't know how they would turn out. We had to go down to a bare-bones skeleton staff and wear a lot of hats, work our faces off and make difficult decisions every day.
We tried changing the length of the runway. How could we do that? By changing our pricing model. We had, in fact, already increased our pricing for our newer customers. But we still had a roster of legacy customers who were paying less based on our former pricing model. After reading about other companies that had gone through similar decisions, we estimated that we would only lose 15 percent of our legacy customers. And we knew from checking our finances that we needed 70 percent of those customers to make the switch to the new pricing model in order to manufacture additional runway, and in order to prolong our meeting with... the cliff.
How did things turn out? Well, it was a painful switch. We gave everyone a 30-day notice that we would be raising prices. And, as we expected, we lost about 15 percent of our clients. That was brutal and gut wrenching, but it also saved the business. And, in a sense, it was validating that the critical mass of our customers were so in love with our product that price wouldn't impact their decision to stay. Not only did the move simplify our billing system, it generated enough extra revenue to propel us up over the cliff. We had made it.
Of course, it's easy to look back and recognize that operating leaner or changing our pricing could have actually shortened our runway instead of making it longer. But it was a calculated gamble on our part that paid off in a big way.
Today, we have reached some critical milestones—but make no mistake, we still have a ways to go before we reach the stratosphere. All of this because we made the decision to keep the throttle down, despite the looming cliff, and get airborne.
A version of this article was originally published on August 28, 2015.
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