36 – My Company is in Trouble. What Should I Do? End of our 2 part episode

"I am leading or involved in a company… and we are in trouble. What should I do?” In this episode, we share what do when you are in trouble and what to do if everything else fails. This is the second and final episode on this topic. For more information, also listen to episode 35 Navigation: Intro (01:34) Section 1: What to do, if the company is in trouble? (02:04) Section 2: What if all else fails? (34:46) Conclusion (47:21) Our co-hosts: Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro Our show: Tech DECIPHERED brings you the Entrepreneur and Investor views on Big Tech, VC and Start-up news, opinion pieces and research. We decipher their meaning, and add inside knowledge and context. Being nerds, we also discuss the latest gadgets and pop culture news Subscribe To Our Podcast Intro (01:34) Bertrand Schmitt Welcome to Tech Deciphered Episode 36. It's our second episode about, "My Company's in Trouble. What Should I Do?" In the previous episode, we talked about the context. We talked about how to determine if your company is in trouble. And we talked about what being relatively safe looks like. In this episode, we are going to talk about what to do if your company is in trouble, as well as what are your options if all else is failing. Section 1: What to do, if the company is in trouble? Nuno Goncalves Pedro Let's say that actually, you are in trouble, that you've done the analysis, you're running out of cash quickly. Your economics are very poor. Your burn is difficult to turn around. What do you do? What is the first thing that you do? Bertrand Schmitt I think the first thing that you do is as management, as a board, to acknowledge you have an issue. That's really the first thing. Acknowledge you have an issue and then start working together, management and board of directors to get in agreement into what is, at the very least, what is our current situation, not even what we should do about it, but always a level of risk, level of tension. The analysis done of what's happening so that you can start smartly discussing about the option for the business. But we saw an acknowledgement across a team of professionals, execs, and board of directors, it's very difficult to move forward. If one side believes a business is doing alright and there is no biggies, that's an issue. If one side believes that, hey, it's not that great in term of burn rate, but we would get financing easily. That's trouble if the other side doesn't believe that. And usually, that might be your board who doesn't believe it would be that easy to fundraise. I guess it depends. But it's really key to be aligned about the analysis. I've seen companies, I think it's less true now, but if you look at in June or May that still we're not acknowledging what was happening in the market, it was crazy for me. It's like, guys, this has happened for six months now. You need to acknowledge it's a different economic condition and what was investable, and we go back to the default investable in November of 2021, is not default investable in September 2022. And the gap might be pretty big. I can see that some people at the first bear markets really start to think, Oh, good times are back. No, no, they're not coming back. Not so easily. And you cannot build and bet your business just based on bet ready for a few weeks. Or both sides of the table need to come into agreement about the burn rate situation, the capacity of the company to deliver on its revenues and its projections of top line, specifically, but also about bottom line and get into agreement about what it means in terms of ability to fundraise. Nuno Goncalves Pedro And let's say we have agreement, so board, executives, everyone's like, we are in trouble. What we're going to share with you next is a little bit the menu. Okay. We're in trouble. What do we do? This is the menu a la carte. Some of these you can bundle, you can mix and match. But this is like a menu of things you can choose to do. The first and foremost thing you can do in terms of order, and this is in an ideal scenario, is control your own destiny. And the levers you have in controlling your own destiny are relatively simple. One is top line What can I do about my top line? And my top line is my sales, my revenues. So can I charge more from existing clients? Can I play a little bit with pricing? Can I create distinctive pricing maybe for new customers? Can I ask some of our existing customers to pay more in advance or contracts that I'm negotiating right now, ask them to pay more in advance? Can I shift around cash and not just money? Again, one key lever that you have is very simple, which is top line. How do I increase it? How do I maybe even make it more predictable? How do I play around with it in terms of levers to make it work? Bertrand Schmitt I think on this one, I totally agree with that reason. That's the first thing to do, it's made so little tactical, but in a situation where you have higher inflation, the least you could be doing is immediately work on readjusting all your contracts with automated readjustment clause based on inflation. That's the minimum thing you have to do about changing your pricing. You have certainly to take that into account. You cannot be stuck with clients who are going to spend for the next, I don't know, three years as much money every year for the same service. They need to end up having to pay more. And that has to be an expectation. I'm talking must see a B2B context. B2C, you don't need 10 people doing that, but it's going to increase by that much. But in B2C, as we have seen from Disney to Netflix, all of them are readjusting their pricing. So please work on this one. It's an easy one. It would be crazy not to use it, especially now that everyone is doing it. Nuno Goncalves Pedro It is a good time to justify it. I mean, it's like inflation and there's all these things happening and we need to pay more to our employees. And it's a good time, as you were saying, Bertrand, it's not just really about the B2B companies, also B2C, the ones that depend on subscription. Even in-app purchases. If you are a gaming company, you could actually tweak the promotions that you're pushing to your gamers and to your users on a weekly basis. The second side is, as you can imagine, the cost side, and that sort of goes directly to the bottom line and how can you become leaner? This is the classic one that people say, "Okay, you just cut costs, right?" Again, I would always start by looking at top line, in the first instance, but you obviously need to look at your cost base. Are there parts of my organization that make a little bit less sense that I can become leaner in. Are there parts of my operations that I can optimize? Are there parts of my supply chain that I can optimize? Are there parts of my relationship with suppliers and logistics firms that I can optimize? Everything is up for discussion. And again, this is a good time to do it because we are in a crisis. So it's a good time at a global level to say, "Well, I need to tweak this a little bit. If you say you're my logistics partner. Would you be willing to cut your costs right now for a certain amount of money and maybe we have an agreement by which we go up in the future?" "Is there something I can do around a specific area of my team that was very geared, for example, towards growth?" I don't want to take a stab at growth marketing because marketing can be a very important function during these times as well. But maybe there is a part of your growth marketing team that you could say, "You know what, we need to step a little bit back. We're not going to be aggressively doing growth marketing in the next six months or 12 months." Maybe the team needs to be leaner by default. I'm not defending that everything here is about layoffs and cutting, but it might be about renegotiating. It might be about actually being a little bit outside of the box and figuring out what is something that's win-win for everyone involved that we could still make this work. We've seen this in the past. We've seen companies that have laid off almost no people, but they went to a reduction in salaries for a defined period of time to see if the company could rebalance itself where they gave something else in return. They gave more benefits in return. They gave maybe more time off in return to the team, or they made the team have more time off for a significant period of time. There's ways of doing this that are not necessarily the classic, I'll just call everyone, fire people or lay them off and we're good. There are ways to do this in a way that is absolutely win-win for everyone involved. But cleaning up the cost side, becoming leaner for a period of time might be the difference between living or dying. Cash is king, and if you run off cash, as we discussed before, you die. So, again, very important to have these discussions. Bertrand Schmitt I guess I might be a bit more aggressive on this, in the sense that, yes, of course, you should do everything that you talk about, in term of trying to optimize your cost in the smartest possible way and go after easy win. If we are talking right now, it's because easy win are behind us and we are in the situation where we need to go deeper and might take that one unveilment where a lot of great companies, especially in tech, have already been going to lay off, 5%, 10%. We thought even thinking about it, they were like, okay, markets trouble, recession coming, that the time to do a reduction in force and move fast. And you even have some companies like Microsoft who do that every year and sometime you have a few percentage of the [inaudible 00:08:15] falls that's let's go to [inaudible 00:08:16]....