HOW CLOSE ARE YOU TO THE EDGE |
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by Eric Brown We are approaching our seventh year in our own Small Business. What a ride it has been. Anyone involved with a Start Up Business can relate. I am glad we hung in there, pushed through and toughed out the storm. But times are tough these days. Ever had a pit in your stomach around payroll time or worried about how to pay all the bills and or how to dodge the incoming missiles. I can relate, we bootstrapped our small business start up, which I would not recommend. I love the part in the e-Myth series, where Michael Gerber is talking about financing your business, "Get the Money, Just Get the Money" he shouts. No money, no start up, money fuels the business."Many of life's failures are people who had not realized how close they were to success when they gave up." ~~Thomas A. Edison As the economic woes deepen, there will be a lot of endings and a lot of new beginnings. Some folks will have given up, while a whole new batch starts up. If 2009 is the demise of Big Business, it may well also be the year for Small Business Start Up's. RUNNING OUT OF MONEY As you traverse the start up terrain, what are your greatest fears and challenges? Mine is and has always been, "Running out of Money" If that ever should happen, It is Game Over. Being from Detroit, the news is dominated by what's going on in the auto business. I was listening to the former GM leader, Rick Wagner at a press release just after the first government loan talk about the company's woes. What struck me was his comment that the company had enough cash to get them to the end of March. What! How can a company, that may have once been one of the best in America, maybe the world only have enough cash on hand for the next six weeks. That was an epiphany moment for me. WHICH TYPE OF ENTREPRENEUR ARE YOU There was a great article in Business Week On-Line titled What to Do if Your Start Up Is Failing The founder of Silicon Alley Reporter and Mahalo.com offers advice from the trenches to entrepreneurs in trouble. Jason Calacanis reported the story here, There are a couple of key parts of the article that really drive home Jason's point and are of value to absorb, which we have quoted directly from the article here; "You see, there are two types of entrepreneurs in this world: real ones and the folks who play entrepreneurs for some portion of their lives. From a distance, most folks can't tell who's who. In up times, when the market is flush with cheap money and unexplained exits (Bebo, anyone?), everyone looks brilliant. It's only when the tide goes out that you know who's naked, to paraphrase Warren Buffett. The differences between the two types of entrepreneurs become clear when the fan and the manure meet. The faux entrepreneurs run for cover rather than dealing with the storm. They go back to their plush, somewhat mindless jobs as vice-presidents at mega-companies, while the real entrepreneurs suit up and clean up the mess." EXTEND YOUR RUNWAY My new phrase is Extend Your Runway and we are doing just that in our Small Business. My biggest take away from the article was this, and although it all does not apply to a Small Business, most of it is pretty sage advice from the article quoted here How Much Time Do You Have You need to figure out your runway immediately. This is really easy to calculate: you look at how much cash you burn every month and divide that into how much cash you have in the bank. Your accountant can do this for you or you can simply look at your profit and loss and your bank statement. Once you know how many months you've got left, you've got to do the hard work of trying to extend it by at least one quarter. This means cutting staff, negotiating with your landlord, and cutting any and all recurring bills. You then need to look at your revenue streams and figure out if you can double them. In most cases, if you do these two simple things, you will have increased your runway by 50% to 100%. If you double your runway, your chances of figuring out what your business actually is will go up exponentially. You also need to do a monthly P&L review with your management team. Look at every single recurring cost you have and figure out how to cut it. In an up market, this level of obsessiveness is often wasteful, because you're in a race to take market share. In the case of MySpace (NWS) vs. Friendster vs. Facebook all having unlimited funds for a period of time, this makes total sense. Why worry about $100,000 in server costs if you're racing to see who gets bought for a billion dollars first? However, this is not that time. You have to change your style. There are times to hit the gas and there are times to conserve your gas. Look at it this way: Getting the most market share and running out of cash is the equivalent of getting to the moon first without the ability to get back to Earth. Congratulations, you won the race...and now you're dead!"
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