Loading...
Answers
MenuWhat to do if my startup is about to fail?
What to do if my startup is about to fail? I'm running out of cash and finding investors might be difficult (I'm in the service based business). I might be able to make this idea happen but I need more cash and time. I also need to hire more people. If I decide to close my business, would it be easy to find a job?
Answers


If you're a service business and haven't been able to make profit, then I highly doubt investors are going to get involved. The beauty of selling your time is you can get people to buy right away, and if they pay anything above $25/hour - then you should make profit assuming you can live off of $50K/year salary.
All that being said, here's what I did when I almost went bankrupt building my company Spheric Technologies (at the time I had 3 employees).
1) I got on the phone and started calling old friends loosely tied to the industry and asked for advice. Doing so introduced me to new opportunities, ideas and connections. I spend every night - after working 8 hours with a client - emailing and calling 15+ people. Some I knew, some I didn't, many I hadn't talked to in years.
2) Focused on sales & getting paid faster. Many times - especially a service based business - will die due to cashflow issues... they can't afford to pay their employees bi-weekly, and wait on the sidelines while their customers pay them net 30, 45 or worse 60+. So I hustled to get my existing customers to pay me Net 0, and going forward, got a deposit (20% up front) and kept the invoice every 2 weeks, Net 0, paid via wire transfer or credit card.
3) Refined the business to focus only on 1 customer type that was profitable. In the early days you take on anything that will "make you money" but you quickly learn that not every customer is the same. If you know this, stop working with customers where you can't make 30% net profits off a project, and use that as your filter for new opportunities. Also, raise your prices if you aren't making profit. Someone in your industry is... so can you.
Unfortunately, there's no short cut or silver bullet - but the pattern to follow is listed above.
I eventually grew that business to 30 employees in 4 years (bootstrapped 100%) and was acquire in May 2008 before the crash. It was the easily the most intense time of my life, but I learned A LOT of lessons that I continue to use today.
Call if I can help, but assuming I maybe priced outside of your range ... that being said, there's thousands of other folks who can help for as little as $30, so get on a call today.


I'm making a profit (about 15k/year) but it's not enough to survice in the long term. I guess I will need to start calling people that might help.
Could it be that your business model is faulty?
Dan hinted at this in his suggestion about concentrating on higher margin clients (in other words - focus on those that pay best and eliminate those where the margin is low).
That's just one factor you must consider - others include:
-How many clients / sales do you need in a given period of time to hit your top line requirements (i.e. the gross income you need per month)?
-Who specifically is your market?
-How are you finding them (outbound marketing)?
-How are they finding you (inbound marketing)?
-Why will they choose you over other that provide a similar service (USP)?
-What is your pricing model? Does your market allow for price elasticity?
-What is your offer?
If you don't know the answers to these questions (and others like them) then you are operating blind. When you DO know the answers to these questions then your strategy becomes more clear and your day-to-day "working ON the business" actions become obvious.
I empathize with your situation. I've been there (and I'm willing to bet that most of the experts here have had similar experiences with their businesses).
The great news for you is that you have immediate access to an amazing group of experts that can very likely, for a small investment (the cost of a call or two), help you get back on track.
If you are serious about saving your business - take action today. Find an expert here on Clarity and schedule that call.
I wish you the best of luck!
Maybe the business doesn't need to be "a business". If it's not earning you a full-time living, then that may be disastrous or it may be ok.
Revenue may be insufficient in comparison with a salary; but if you can generate that revenue part-time and think of your business as a side project, an "income stream" alongside others rather than your full-time gig ... then you may be able to scale down that business to its most efficient level and retain it.
Later on, once you have balanced multiple income streams in a way that optimizes your time invested and generates a salary-equivalent income, then you may find a way to adjust the balance and grow that single income stream into a full-sized business. By then, maybe your reputation and clientele will have grown naturally on their own. Or you may have access to more funding or better marketing tools.
It doesn't necessarily need to be "all or nothing".
Related Questions
-
How much equity should a CPO receive when joining a Series A startup that's been around for 2-3 years?
Hi There are various 'models' that you can use to estimate how many shares/percentages your new partner should get. These include (a) his/her investment in time and/or money, (b) the current + potential value of the company, (c) the time and/or money that you as the original founder already put in and various other models. That said, at the end of the day, it's all about value and psychology (both side's feelings). Bottom line: 1. It all really depends on how much value they are giving you (not only financial, sometimes even just moral support goes a long way). Some founder's 'should' get 5%, some should get 50% or more. 2. Ask the potential partner how much shares they want (BEFORE you name a number). 3. Have an open conversation with them in regards to each of your expectations. 4. Use a vesting (or preferably reverse vesting) mechanism - meaning that the founder receives his shares gradually, based on the time that goes by (during which he fulfills his obligations) and/or milestones reached. 5. If you want a mathematical method: calculate the value of each 1% of the shares (based on the last investment round), check how much an average CPO earns per month/year, and then you can calculate what % he/she should get for the 2-3 years they should put in. I've successfully helped over 350 entrepreneurs, startups and businesses, and I would be happy to help you. After scheduling a call, please send me some background information so that I can prepare in advance - thus giving you maximum value for your money. Take a look at the great reviews I’ve received: https://clarity.fm/assafben-david
-
How much equity should I give an engineer who I'm asking to join my company as a co-founder? (He'll be receiving a salary, too, and I'm self-funding)
You will find a lot of different views on equity split. I haven't found a silver bullet. My preference/experience is for: 1. Unequal shares because one person needs to be the ultimate decision maker (even if it's 1% difference). I have found that I have never had to use that card because we are always rational about this (and I think us being rational is driven because we don't want a person to always pull that card cause it's a shitty card to pull) 2. When it comes to how much equity, I like Paul Graham's approach best: if I started the business by myself, I would own 100% of the equity; if xxx joined me, he/she would increase my chances of success by 40% (40% is just an example) at this moment in time. Therefore, I should give him/her 40% of the company (http://paulgraham.com/equity.html) 3. In terms of range, it could go between (15-49%) depending on the level of skill. But anything less than 15%, I would personally not feel like a cofounder 4. Regarding salary and the fact that you will pay him/her, that's tricky but a simple way to think about it: If an outside investor were to invest the equivalent of a salary at this exact moment into the startup, what % of the company would they get? (this may lowball it if you think the valuation is high but then again if you think you could get a high valuation for a company with no MVP, then you should go raise money) One extra thing for you to noodle on: given you are not technical, I would make sure a friend you trust (and who's technical) help you evaluate the skill of your (potential) cofounder. It will help stay calibrated given you really like this person.
-
How do you get your first customers for a consulting business?
Back when I started LinkedIn wasn't as huge as it is now. I wish it was. I didn't have a large network and those networking sessions NEVER brought me any clients. I used to go to all sorts of them hoping to get clients. There were a couple of nibbles here and there, but never anything serious. The only thing that helped was reaching out DIRECTLY to people in my target market. That meant cold calls and cold emails. I'd sell myself while thinking about their needs. Once I got a few bites I'd build good rapport by keeping in touch, asking questions, repeating back what they were saying so that they knew I was on the same page and kept my promises. If I said I'd call them back next Tuesday at 2:15 I'd do so. Eventually I built trust with them without having a network, or an insane amount of experience. Oh and the most important thing about consulting is to LISTEN. When those first clients notice that you're truly listening and you're not selling the cookie cutter solutions everyone else is trying to sell them that's when you got them hooked. You start to understand their problems, fears, and see through their eyes and not just yours. A network will help, but in the beginning just good 'ol salesmanship will get the ball rolling.
-
What legal precautions can I take to make sure nobody steals my startup idea?
I've discussed ideas with hundreds of startups, I've been involved in about a dozen startups, my business is at $1M+ revenue. The bad news is, there is no good way to protect ideas. The good news is, in the vast majority of cases you don't really need to. If you're talking to people about your idea, you could ask them to sign an NDA ("Non Disclosure Agreement"), but NDAs are notoriously hard to enforce, and a lot of experienced startup people wouldn't sign them. For example, if you asked me to sign an NDA before we discussed your Idea, I'd tell you "thanks, but no thanks". This is probably the right place though to give the FriendDA an honorable mention: http://friendda.org/. Generally, I'd like to encourage you to share your Ideas freely. Even though telling people an idea is not completely without risk, generally the rewards from open discussions greatly outweigh the risks. Most startups fail because they build something nobody wants. Talking to people early, especially people who are the intended users/customers for your idea can be a great way to protect yourself from that risk, which is considerably higher than the risk of someone taking off with your idea. Another general note, is that while ideas matter, I would generally advise you to get into startup for which you can generate a lot of value beyond the idea. One indicator for a good match between a founder and a startup is the answer to the question: "why is that founder uniquely positioned to execute the idea well". The best way to protect yourself from competition is to build a product that other people would have a hard time building, even if they had 'the idea'. These are usually startups which contain lots of hard challenges on the way from the idea to the business, and if you can convincingly explain why you can probably solve those challenges while others would have a hard time, you're on the right path. If you have any further questions, I'd be happy to set up a call. Good luck.
-
What happens to a convertible note if the company fails?
Convertible notes are by no means "earned." They are often easier to raise for early-stage companies who don't want to or can't raise an equity round. Equity rounds almost always require a simultaneous close of either the whole round or a defined "first close" representing a significant share of the raised amount. Where there are many participants in the round comprised mostly of small seed funds and/or angel investors, shepherding everyone to a closing date can be very difficult. If a company raises money on a note and the company fails, the investors are creditors, getting money back prior to any shareholder and any creditor that doesn't have security or statutory preference. In almost every case, convertible note holders in these situations would be lucky to get pennies back on the dollar. It would be highly unusual of / unheard of for a convertible note to come with personal guarantees. Happy to talk to you about the particulars of your situation and explain more to you based on what you're wanting to know.