The Road Frequently Traveled
- CHIP MAURI
- AUGUST 20, 2018
Passion. Intelligence. Self-determination. Courage.
These are primary keys to nurturing a new idea, or finding a way to do something better – and a new company takes flight. As the founder, in hero-like fashion, you invest untold amounts of personal funds, and even greater volumes of hours, tears and sweat.
Challenges always arise to meet you; entrepreneurs oftentimes face unanticipated obstacles and are stopped short of reaching cruising altitude, never mind break through to the next phase of business maturity. Naturally, more and more effort is applied, but exhaustion and frustration takes deeper root instead of a robust bottom line.
To achieve the necessary breakthrough, an infusion of capital (cash) and subsequent phase two leadership (hiring better talent who can spark advanced strategies, deploy solid tactics and drive toward better outcomes) could be the answer. However, this can be difficult to do without giving up sole control of the company. Selling the business is an option, but the company may not yet command a price large enough to entice the owner to walk away.
Thus, the owner is trapped – they must keep their fledging enterprise airborne to maintain existing cash flows, yet selling out generates too little in return.
It’s time to pause, according to Peter Vanham, contributor to Harvard Business Review and author of Before I Was CEO, and ask three initial questions:
First, how much personal effort are you still willing to make, after accepting that your previous efforts amounted to little? After all, when a crisis hits, the time you have put into your company and many of the results obtained will be wiped out, and it would take considerable additional effort to even return to square one.
Second, what access to cash do you have left, and how willing are you to gamble with it? Here also, a crisis would make it necessary to relabel a lot of previous financial investments as sunk costs, while future investments and their returns should get re-assessed based on new, less favorable market realities.
And third, what is the proven viability of your company’s business model? If a company was profitable before the crisis hit, it is reasonable to assume it can be so again. But if there had never been any hint of profitability or even revenues, it might seem naïve to assume it would yield returns now.
His third question may be the most paramount of the three. If honest and fair discernment suggests poor viability of the ongoing concern, then a new and immediate business model must be explored, or searching for a transaction (sale, merger) where your assets when merged with another firm yield synergies greater than the transactional cost, or closing the doors to minimize losses are all in play at this point.
If that discernment suggests instead that the model is still viable, then additional strategies can be pursued. Cost cutting, as painful as that might be, cannot be paralyzed by sentiment and regret. Cash-deferring employment agreements (delayed stock compensation) can not only slow cash outflows, but may provide additional incentive for your best employees to ‘stick it out.’ You can review every existing contract and make sure that operational and accounting leakage is not exacerbating the problem. Then you hit the road and focus on selling your firm’s core competencies.
(Shameless plug, here: This is where the Calculation Bar can be a turnaround catalyst. First, we listen to the business story – both the great concepts in place, as well as the current struggles. Next, we quickly insert ourselves into the company’s bookkeeping and implement methods that focus on data management, analytics and insights. We identify and shore up revenue leakage and problematic expenses, introduce new operational tools and share best practices that improve the company’s cash position. Then, we help develop a strategic plan on how to raise capital from investors and lenders while maintaining as much company control in the founder’s hands as possible. Finally, we advise on an exit strategy, whereby we maximize enterprise value (ie, selling price).)
This is the road frequently traveled. It’s your personal road to Jericho – its been traveled many times by those that have come before you. Some never found its end; and no one has ever completed the journey easily or unscarred. It’s a tough road, but if anyone can do it, you can. Pause and reflect on those three questions before you blindly re-start down that path. Then, enjoy the pursuit.
The Calculation Bar is an organization driven to creatively transform corporate finance through compelling data visualization, technology and responsive customer service.
We partner with mid-tier corporations to design, apply and automate business functions and reporting. Our goal is to optimize how business leaders use data effectively, improve profitability and engender deeper conversations with lenders and investors.
For more information, please visit calculationbar.com.