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MenuStruggling 8yr Old Startup on the Edge.
Answers
First, this is a tough spot you’re in. By making it this long you’ve already accomplished something most people never do.
My own company was bootstrapped and we’re in our 16th year now. We’re still employee-owned and have no outside investors. Looking back, there have been trade-offs to doing things the way we have but a major benefit is the very high degree of flexibility in how we do things.
As I’ve been thinking about your problem, the biggest question for me is what changed between 2012 when you were doing well and now? It sounds like you’ve dealt with the patent troll, so what else changed? Do you have new expenses you didn’t have before? Did your product become stale while you were distracted? Did a market shift disrupt your business model? Are you different yourself?
To reboot the business and keep it running, you may have to rethink your whole product and cut out parts that feel critical to you today. You said you have some well-funded competitors so you need to focus all of your energy on whatever your company can do that is better than everybody else, and make it the best it can be. Focus on whatever generates the most cash for you (vs revenue). If there is part of your business that’s bringing in revenue but not cash flow, kill it or raise prices. Cash flow is everything when you’re bootstrapped.
If you are only having a short-term cash crunch but are otherwise cash flow positive, then a business loan or debt of some sort could be an option. Giving up equity isn’t the only way to bring more working capital into a business. It’s much easier to get someone to give you money when you don’t need it, though.
In general you don’t have to go the bankruptcy route unless you owe people money you will not be able to pay back. If you just can’t afford to keep your own lights on but don’t owe anyone else money, there’s nothing to do but just shut the lights off.
With more details, I might have more specific ideas.
Not knowing *many* of the factors that has lead you to this point, I can only offer some generalities.
General Tip #1: $0 Budget
Start your operating budget at $0 and only add what you *absolutely* need
General Tip #2: MVP
Create your minimal viable product; ship something, even if it isn't perfect, and start building your customer base. It is much better to ship something and improve over never shipping and drowning.
General Tip #3: Stop Comparing
You say that your competition is well funded and you have to be on the defense. Stop comparing and start solving problems for people. You may be similar, they may have more money, but you are uniquely created with a certain set of biases, preferences, communication styles, and insights that they do not have. Capitalize on this and solve a problem for your ideal customer. They don't care who has a bigger marketing budget.
General Tip #4: Pick a Target
You talk about focusing on growth AND on having a plan to shut the business down. Pick one. You will never be able to focus on just one when you are thinking about two of them. Just like you cannot hit two targets with one arrow.
I'm happy to help further, if you're interested.
I'm sorry to hear that. I completely understand what it's like to pour your heart and soul into a business for many years, because I've done it several times. Some were successful in some were not.
Here's what I recommend:
1) You may have already done this, but if not deeply analyze if there is some sort of pivot you can do to increase sales without having to take investor money. This recent Entrepreneur magazine article talked about how I did this with a site that was on the rocks: http://www.entrepreneur.com/article/235503
2) See if you can bring on a cofounder type partner,who has specialized knowledge in the crucial areas that you lack that are holding sales from growing. In exchange for a significant amount of equity, they can pour a bunch of new energy and enthusiasm into the company, which might be the thing you need right now after 8 years.
3) if that doesn't work: every business has competitors.The assets your company has are usually significantly more valuable to a competitor,then if you were to attempt to sell them to a new entrant to the market. For example, you probably have a significantly sized customer email list, that a competitor would be interested in purchasing. You may control certain parts of the market that a competitor does not, which would make it desirable to them. If you haven't done so already, I would recommend contacting the other CEOs in your industry and finding out what their situations and needs are.
4) if that doesn't work, then you would look at what pieces of the company you could sell to others that might still have value, before shutting it down.
I hope this helps.
Hi,
Firstly, bravo for having the courage to post such an honest question. Only a true entrepreneur would be able to dig deep to find the courage to be so honest, particularly when the perception (and expectations) of entrepreneurs is to always "Put on a positive face and say everything is going great!"
1) You had $2M in annual revenue at some point, so you did *something* right and found a measure of p/m fit. This means there is a great chance you can recover this. But it might mean ripping your product and whole business functions apart and rebuilding just the best bits and the parts most relevant for today. Prepare for potential layoffs and new hires, as the business may look very different.
2) While the patent-troll issue sucks, I'm assuming there have been no permanent damages to the product or market-shifts that have affected you. So it could even just be a cashflow-gap that needs to be plugged with a bit of debt-financing
3) I've yet to discover a company making sales that isn't attractive to at least 1 investor. Every investor has different portfolio goals, personal goals and personal interests, flaws, strengths and traits. While the terms may not be super favourable because of your exposed position, there will be investment options if you can repackage and re-position the company correctly
4) Emotionally, I strongly recommend you find a few really close entrepreneur connections you can rely on for emotional support. Founders have *very* few people we can be emotionally open with, and it's important you find some people now so that they can be a part of creating the solid, rock hard foundation that you will need for the journey in front of you.
5) Winding down companies is easy (technically). The emotional problems are the hardest. Be sure to have a personal plan B in place (house payments, family maintenance). To start you off, know that entrepreneurs who have taken a journey such as yourself will *always* be in high demand for bigger startups willing to pay fat salaries. Just be sure you have the personal cash to survive for a few months while you find that job (and get your personal expenses in order NOW in case that happens.)
6) I'd love to do a call with you to see if I can offer any perspective about the current business. Message me and I'd be happy to help out ("on the cheap")
If you look at history, the great problems of the world took decades to solve. Unlike a lot of fast-growth stories, often you have to be in it for the long haul.
So the key question is: do you want to give it your all to make this happen?
If so, then you know what to do: pivot, pivot, pivot, until you find the market fit, keep talking to everyone who might buy. Continually test whether there is a need for your product. Treat your pipeline as sacred. Get a cofounder. And listen to your gut.
Based on your position it doesn't sound like you are confident in your companies ability to utilize it's competitive advantage to take market share from the funded companies you seem to be up against. If I were in your shoes I would be proactively considering all of my options and digging deep as to what they really require. If you want to continue you need at least enough funding to be able to properly market and sell your established product to take market share. You could "shut down" as you mention, but with the IP you have probably already developed, why not contact some of your more admired competitors and ask if they are interested in buyout including taking you on in a role that they feel could add equitable value to their positions?
I would be happy to do a free call to understand your specific product/service and position better to dice it up a bit more. Winding down the company would be a nightmare, I'd avoid that if at all possible.
Your company has reached Aha moment, and there is no turning back now. You must fight it out and fight hard. There are so many companies that undergo this moment and only a few among hundreds and thousand get over it. So here are certain tips that would help you bring your company back from the edge.
1. Start with your vision: Your vision sets the direction for where your business is headed. It also determines whether your business will thrive or fail. Take time early on to polish your vision, analyse your strengths and weaknesses, define the marketplace. These key pieces of your vision will provide a true north for the rest of your strategy.
2. Go goal-first: If you are not a natural goal-setter, you can become one. Define a few short-term goals that align with your strategy, and then create the steps needed to achieve them. Goals give your daily work purpose. There is so much to get done in start-ups that you will forget why you are working on specific tasks. Having a goal-first approach helps align your small, daily actions with the reason why you built your start-up in the first place.
3. Solve one problem: Start-ups often feel like they are flying blind; there is much to get done in extraordinarily little time. But trying to multi-task by solving all problems at once is guaranteed to lead you off course. Instead, identify the one problem you want to solve for customers and align all of your actions towards achieving that goal. You will quickly find that when you focus all your efforts on solving one problem, additional problems will present themselves.
4. Be responsive: At Aha! we are interruption-driven and respond to requests with urgency. We do this because answering people while requests are still fresh aligns with our most deeply held values. Our customers know they can count on us to offer crucial guidance.
5. Spend wisely: Many start-ups waste too much money on the wrong things. If you are running out of cash — or have yet to receive any — you must make some tough decisions. These choices might be painful now but will likely be best in the long run. Be stingy with your budget early on. Spend money only when you absolutely must, and prioritize what will create the most value for the business.
6. Treasure your time: Time is your most precious resource. And there are many ways you can spend your time as a founder. By far the best way you can spend it when your business is in trouble is refining your strategy and goals. Time and experience have taught that this approach wins in the long run. Clear your schedule so you can focus your time, attention, and energy on what matters most. Once you develop a clear vision for your business, you will see the opportunities and challenges ahead. This will help you breathe easier. You might even beat those stiff odds and become a start-up success story.
Besides if you do have any questions give me a call: https://clarity.fm/joy-brotonath
Related Questions
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What do (bootstrapped) startups offer to new sales hires? Commission only? What are some good examples to keep people motivated and still survive?
Generally bootstrapped startups should avoid salespeople, for a few reasons: a. they typically can't afford the base and overall comp required to attract sales people who can actually sell / or afford to support them with marketing, management, etc b. it will be very difficult to find the rare person with the right mix of sales and startup DNA along with the critical domain knowledge, consequently the startup is likely to settle c. the founders need to be very involved in the selling and customers will demand it That said, if the plan is still to hire a salesperson, find someone who has demonstrated sales success in startups and is excited by the early stage in company building. Create a comp plan heavily leveraged on sales results (unless you are in an industry where 100% commission is a common practice, would recommend against $0 base as this creates the false impression that your hire isn't passing time with one company while looking for another job with a richer comp plan - you want your rep focussed). Sell the vision and opportunity to be part of a growth story. I have written a several blog posts on hiring sales people into start-ups. You might find these useful: http://www.peaksalesrecruiting.com/ceo-question-should-i-learn-to-sell-or-hire-a-sales-person/ http://www.peaksalesrecruiting.com/start-up-sales-and-hiring-advice-dont-stop-selling-once-you-hire-your-first-sales-rep/ http://www.peaksalesrecruiting.com/hiring-start-up-sales-reps/ http://www.peaksalesrecruiting.com/startups-and-salespeople/ Good luck!EB
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how to start earning on clarity.fm
Most of the earnings come from the people you are in contact with. The platform is not that big at the moment but it can be earned. My recommendation is to create content on your private page web, facebook, instagram ... and leave a clarity link through your work. If you need extra help call me for 15 minutes.DB
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What is the average series A funding round at pre revenue valuation for a enterprise start up w/cutting edge tech on verge of our first client.
With all respect to Dan, I'm not seeing anything like that. You said "pre-revenue." If it's pre-revenue and enterprise, you don't have anything proven yet. You would have to have an insanely interesting story with a group of founders and execs on board with ridiculous competitive advantage built in. I have seen a few of those companies. It's more like $3m-$5m pre. Now, post-revenue is different. I've seen enterprise plays with $500k-$1m revenue/yr, still very early (because in the enterprise space that's not a lot of customers yet), getting $8m-$15m post in an A-round. I do agree there's no "average." Finally, you will hit the Series A Crunch issue, which is that for every company like yours with "cutting edge tech" as-yet-unproven, there's 10 which also have cutting edge tech except they have customers, revenue, etc.. So in this case, it's not a matter of valuation, but a matter of getting funded at all!JC
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How can I become an idea person, as a professional title?
One word: Royalties This means you generate the idea and develop it enough to look interesting to a larger company who would be willing to pay you a royalty for your idea. This happens all the time. Rock stars, authors and scientists routinely license their creative ideas to other companies who pay them a royalty. Anyone can do it. Your business, therefore, would be a think tank. You (and your team, if you have one) would consider the world's problems, see what kinds of companies are trying to solve those problems, and then develop compelling solutions that they can license from you. You have to be able to sell your idea and develop a nice presentation, a little market research and an understanding of basic trademark and patent law. The nice thing about doing this is that if you develop enough cool ideas you will have royalties coming in from a lot of different sources, this creates a stable, passive revenue stream that requires little or no work to maintain. Start in your spare time and plan on the process taking 3-5 years. Set a goal to have a few products in the market that provide enough revenue (royalties) to cover your basic living expenses. Then you can quit your day job and dedicate more time and increase the momentum. A good idea business should have dozens, if not hundreds of license contracts generating royalties. It's possible to pull this off. And it is a fun job (I'm speaking from experience).MM
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How much equity should I ask as a CMO in a startup?
Greater risk = greater equity. How likely is this to fail or just break even? If you aren't receiving salary yet are among 4-6 non-founders with equivalent sweat investment, all of whom are lower on the totem pole than the two founders, figure out: 1) Taking into account all likely outcomes, what is the most likely outcome in terms of exit? (ex: $10MM.) Keep in mind that 90%+ of all tech startups fail (Allmand Law study), and of those that succeed 88% of M&A deals are under $100MM. Startups that exit at $1B+ are so rare they are called "unicorns"... so don't count on that, no matter how exciting it feels right now. 2) Figure out what 1% equity would give you in terms of payout for the most likely exit. For example, a $10MM exit would give you $100k for every 1% you own. 3) Decide what the chance is that the startup will fail / go bankrupt / get stuck at a $1MM business with no exit in sight. (According to Allman Law's study, 10% stay in business - and far fewer than that actually exit). 4) Multiply the % chance of success by the likely outcome if successful. Now each 1% of equity is worth $10k. You could get lucky and have it be worth millions, or it could be worth nothing. (With the hypothetical numbers I'm giving here, including the odds, you are working for $10k per 1% equity received if the most likely exit is $10MM and the % chance of failure is 90%.) 5) Come up with a vesting path. Commit to one year, get X equity at the end. If you were salaried, the path would be more like 4 years, but since it's free you deserve instant equity as long as you follow through for a reasonable period of time. 6) Assuming you get agreement in writing from the founders, what amount of $ would you take in exchange for 12 months of free work? Now multiply that by 2 to factor in the fact that the payout would be far down the road, and that there is risk. 7) What percentage share of equity would you need in order to equal that payout on exit? 8) Multiply that number by 2-3x to account for likely dilution over time. 9) If the founders aren't willing to give you that much equity in writing, then it's time to move on! If they are, then decide whether you're willing to take the risk in exchange for potentially big rewards (and of course, potentially empty pockets). It's a fascinating topic with a lot of speculation involved, so if you want to discuss in depth, set up a call with me on Clarity. Hope that helps!RD
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