I was expecting the call, I had been pre notified that a business I was following, was in real trouble and would shut down or be sold under duress within a week or so. It was Sunday night around 9:20 PM, I received a text from the founder and CEO saying he know it was late and asked what time in the AM we could talk. I politely responded that I am hear 24/7 for him hoping he would take the bait, knowing that in a workout tomorrow maybe too late. Here and now is what mattered. He did and we spoke.
I was prepared and asked him a few pointed rapid fire questions relating to assets, liabilities, income, expenses and margins. I needed to quickly get a handle on what the issue was and was the business worth saving. So I peppered him with 10 or so questions, which he knew all of the answers to right away. Always a good sign, I am always amazed when owners don’t know the answers. But thrilled he did and I really wanted to help him. He is a smart, hardworking guy, great guy.
Within a few minutes I came to the conclusion that this was a business worth saving, the problem was it grew to fast accumulating major losses along the way it was funded by one investor with unrealistic expectations. The business was bleeding money and the blood bank went dry. One of the things I focused on was the recurring and steady income, as well as what the bare bones expenses needed to keep the doors barely open were. I also focused in on the cost to acquire a client and the lifetime value of the client. In my head I knew if the founder wanted to we can save this business, or at least keep it alive long enough to have a second fighting chance, it could be done.
So the big and most important question I asked. What are your goals? What would you rather do walk way or stay and fight. A very hard question and decision for any founder who puts his blood, money, ego and his whole being and life into.
After I got his answer we quickly laid out a plan that would bring the company to a cash flow positive immediately. This plan included laying all 80% of the staff Monday first thing. Reminder it was late Sunday evening at this time. When I told him the timeline on the layoff’s you could hear this guy’s heartbeat. Not an easy thing I was telling him to do. But I told him there was no point in delaying it and it needed to be done as soon as possible. Every hour counted. I also knew that he was meeting his investor Monday evening and the investor wanted the company liquidated. I knew he needed to go into that meeting strong, showing the investor that the bleeding was over, and he was a strong decisive leader prepared to do what it took to turn this business around. I knew that the investor had invested a great deal of money with no return and if liquated 90% of it would be gone and the best way to ensure the maxim recovery for the investor was to not only ask him not to liquidate, but to make major concessions in terms of dilution. It’s not easy to lose a lot of money and it’s not easy to be the CEO of the company who lost it.
Step 1: Stop the Bleeding immediately, you’re doing some unpleasant and uncomfortable things
Step 2: Solidify get all the stakeholder’s, staff, critical vendors, investors on your side firmly committed to the turnaround. You’re asking people to do more with less. Believe in you and the business.
Step 3 Take a step back and find ways to bring in more revenue, improve all of the key indicators and to do it all for much less. In fact there is no room for any negative cash flow period.
Step 4: Execute on the new plan, reinvent and rebuild