Nesheim Online Blog

STARTUP LAYOFF: 1 of a Series

There is an old adage “You’re not a real startup CEO until you’ve missed payroll.”

That sounds draconian to first-timers, but veterans expect to encounters that trigger a sobering decision: sharply cut the burn rate by cutting a significant number of employees.

For first-timers, there will be intense emotions triggered in you when doing your first layoff, and I highly recommend you get prepared for how to do a layoff well.

 Layoffs are encounters that are never forgotten. They trigger soul wrenching emotions. That’s reality.

And a layoff can save a company for a comeback.

Now the good news: There are time-proven ways to prepare for and execute a layoff well. I’ll go over those with you here. I’ve been through many such events, each time it was always painful for everyone.

Expect Intense Emotional Pain

Missing payroll and or doing a layoff is extremely painful emotionally, starting with the founder CEO. Those emotions can also trigger physical pains, some life-threatening.  Plus, the pain is felt inside everyone in the company, as well as customers and suppliers and investors. When the media gets wind of the layoff and the social media is flooded with the bad news, the psychological pressure on management rises to red hot levels. No one is immune. I’ve worked with men who are mentally as tough as steel and watched them agonize over a coming layoff. No one was an exception among those I’ve experienced.

Expect Surprises

I’ve found most of the layoffs occur because of the vast number of unknowns and uncertainties inherent in a startup. In other words, there are so many things that can go wrong in a startup that very often many happen at the same time. Then cash burns unexpectedly fast, and a crisis is born that necessitates “downsizing” and thus the layoff of lots of valued employees and contractors must be done before bankruptcy arrives.

Every startup hits the wall sometime and has to cut its planned burn rate. Not all such moments require a layoff, but most do, in order to survive. I do not think any new enterprise is immune. Spotting the coming trouble in time may give management enough time to begin slowing hiring, doing less ambitious projects. But I think startups are most likely to be caught by surprise.

Even if your startup appears be doing fine by your metrics, it’s not immune to a layoff. All enterprises are subject to the sudden arrival of uncontrollable events such as the effects of a weakening economy that quickly dries up venture financings. Think of the effects of the trade war between China and the U.S. Or COVIN-19 coronavirus. Or a recession that starts just when you launch your first product. Whatever the reason, the action required of a startup CEO quickly becomes clear. the founder: The CEO must cut deeply – or face running the fledgling business into the ground – dead and buried.

It may surprise you to know that a layoff can happen from hot success. Here is a real example from my experience.

I watched a hardware startup launch and begin online sale of its first product. Management was expecting a gradual rise in sales. Instead, on the first day the orders rocketed up, a tsunami size of unexpected customers, far beyond the most optimistic dreams. The tiny startup was slammed by the pressures to deliver. It experienced a near meltdown. Every IT system crashed, orders were double-shipped in many cases, while other customers paid but never were sent the product. The situation grew worse when the media got wind of the disaster and spread it virally. The ambitious company had to concede defeat for round one, do a layoff, retreat and regroup. Fortunately, its leaders were able to get the company repaired and re-emerge, returning to a march that led them to become a great new enterprise.

I wish you The Best on your Adventure!

JOHN

STARTUP FLOP RESPONSE: "Marketing Example" - 2nd in a series

“Argh! This thing is not selling. It’s boring people to death!”

Swift and clever action, bold and wise, can save the day. There are things you can do to turn around your stalled, threatened, sinking business. Serial entrepreneurs know what to do to turn flop into a pop, a fast selling new product.

Marketing Move Example

Let’s learn from some startups I’ve been close to whose CEOs ran into serious problems when their company’s first product turned out to be selling poorly.

My observations are based on startups whose initial marketing plan did not get their first product flying off the shelf. Here’s what I observed about what the leaders did then.

Trouble arrived for each startup after initial sales were acknowledged by the CEO and staff to be far below planned hopes, going nowhere great.

Among the startups in such dire straits, I saw those who were serial entrepreneurs act swiftly. Each spent only a month or two trying to figure out how to modify the existing product. The first timers changed little, instead spent time rallying the discouraged troops to work hard, to keep at it, trying and hoping.

During a series of frank meetings, the experienced CEOs lead the first discussions with company staff about what a handful of modest product modifications might produce. That produced suggestions for changes that might alter product performance in various ways so that customers might get excited, at last.

In about half of the companies lead by veteran startup leaders, the CEO chose to tweak the product a bit and modify the marketing message, willing to wait and see what then would happen over the next few months. I found those decisions gave the existing product an average of about nine more months of life. In the other startups run by veterans, the CEOs decided to make bolder moves.

The other half abandoned the first product after the first or second meeting, putting an end to it, putting it out of its misery.

With the CEO’s decision to end the first product came a quick series of meetings: First a gathering of the leaders and then an all hands meeting of the company employees. Reasons for the decision were given by the CEO without pointing fingers at individuals. Then the CEO gathered his staff and turned the brainstorming over to the marketing leader as they began to figure out what to do with the company.

The creative sessions I attended were a mix of stress and laughter. The mood of attendees was both deadly serious yet spiced by jokes and laughter. I could see that people were relieved enough of the stressful situation to make fun of what they’d done so far. It felt to me like a fresh start in spite of the dark situation.

As the working sessions proceeded daily, I could see people beginning to think boldly, making some amazing proposals. Some of the staff wanted to try a fresh product, much bolder in kind yet similar to but far better than the first failure. Others focused on how to come up with an entirely new product aimed at the same customer market segment. Some leaders pushed for an entirely new business model. A few wanted to shift to an entirely different industry.

All those CEOs ended up making bold decisions in a few weeks. Some turned a mess into a winner. Others did not and ended up closing the doors. The first timers all ended with their businesses going out of business.

During my decades of hands-on work with founders, I’ve found that for first timers, either their first product becomes red hot, or the company turns into a dud. They do not know how to make the bold changes needed to survive and thrive. I’ve only read and watched a few of those rare first timers whose founders converted boldly from a weak first product into an amazing winner. Airbnb – from renting air mattresses to what they have become today.

Making the big change decision to entirely change the startup is enormously stressful. It has to be done in just a few months, not years. It triggers deep soul shaking, pushes you to the edge of your emotional cliff. Fear of failure is very powerful, negative and always shows up in everyone in the startup.

There is a poignant example of CEO stress in the first half of the book “Explosive Growth” in which Cliff Lerner openly writes about his feelings and stress. I found the book full of rock-solid tips of what worked and didn’t when an initial product does not excite enough users. I recommend reading it to see what worked and did not for his company and how you might act when such an encounter arrives for you to respond to.

EXAMPLE:

SNAP Interactive Inc. dating founder, Cliff Lerner describes in his book “Explosive” how he and his core team hit the not-selling wall, the nobody’s-using-it barrier. Even though SNAP was an early entry, the online dating service was still not catching fire but competitors were. It was a very sobering reality to him. Then he tells about the day by day scramble to figure out what he and his staff did about that horror. They embarked on weeks of marketing experimentation, trying all sorts of tactical moves, small things to try to change the service, shift market messaging, follow hot products, anything that might move the needle measuring the number of users. After a few months of intense efforts, he concluded the best next move was to abandon the online service, and pivot, this time to a Facebook app/API. Shortly after the SNAP user population soared.

The objective is to turn a flop into a pop, a fast selling new product. It can be done, often is. So can you.

I wish you The Best on your Adventure!

JOHN

STARTUP FLOP RESPONSE: "Action!" - First in a series

“Argh! This thing is not selling. It’s boring people to death!”

 “You’ve got to be kidding! That startup just announced a product like ours? Argh! Then they are nearly a year ahead of us!” 

“What do you mean, you can’t make it work like you said you could? We are depending on you to deliver the impossible technology, awesome, game changer, disruptor!”

Or, “Cash is burning, I can’t find a new investor interested, the end is in sight.”

Encounters like those happen to even the most respected startup leaders after their second or third startup. History shows most new enterprises get into such serious trouble that it threatens the survival of the fledgling new business. And in most cases the startup will eventually go out of business (numbers for successes and failures are cited elsewhere in this book). Internal and external troubles happen to every startup, with most CEOs finding that the accumulation of bad days finally results in their startup turning out the lights, permanently.

But bankruptcy does not have to be the outcome. Swift and clever action, bold and wise, can save the day. There are things you can do to turn around your stalled, threatened, sinking business. Serial entrepreneurs know what to do to turn flop into a pop, a fast selling new product.

Action Jackson!

When the terrifying bad news is encountered, startup veterans waste no time. Here’s the pattern I’ve seen the startup pros take when big trouble arrives.

1. They first take control of their emotions. They avoid seeking someone to blame, to fire. Instead, they begin with a deep breath, calm down, get centered so they have clear minds, able to make challenging decisions.
2. Next, they do a quick diagnosis of what’s happening, mainly to make sure the situation is not temporary.
3. Then the CEOs will gather the company’s leaders to assemble available facts about what’s going on, what’s gone wrong, using care to separate fact from fiction.
4. Then they ask for assistance, communicating this dire situation to affected stakeholders, from employees to investors, asking for support and tips on what might be done next.
5. Finally, they turn their minds to figuring out ASAP what should be changed, what could be done differently – to get sales turned around, rising, fast, very fast.

In contrast, first timers are struck by fear, frozen in the headlights. They grit their teeth, dig in, and shout to employees “We’ve got to try harder!” They think that if they work 38 hours a day, eight days a week, then surely things will get better. “Our first product is nearly great, I’m sure it will be great, someday soon. Just believe!”

Unfortunately, dig in and try harder tactics most often produces dead bodies like World War I trench warfare.

In contrast, veterans swiftly begin experimenting, trying, changing, week by week, testing alterations in what the company is doing in order to see what those changes will do to customer responses and sales, to suppliers and investors. Over and over, the leaders test, measure, analyze, decide. Over and over.

Sometimes a couple of early repairs will stabilize, even turn the situation positive. I’ve seen that happen when the leading tech coder was fired and the replacements turned the busted product into a winner.

It might mean simply changing boring brown labels of organic face creams into invigorating pink. Or a simple change in the business model: subscriptions that pushed product users away are converted into free-to-use memberships. Perhaps it is just a bold marketing move, in the form of a raffle that gives away a new Tesla as rewards for consumer responses to a customer survey. I’ve seen several creative marketing minds make such clever, small moves that resulted in sales growing again.

But most of the time I’ve found veterans who succeed will have to be courageous enough to make big, bold changes. Often that means the leader will decide to turn the company in a different direction, even into a different business, via the proverbial pivot move.

When those big, confronting encounters arrive, when very bad news shows up, it’s mandatory that the leaders are people with strong courage and able to do bold thinking. Whatever you call them: startup builders, movers of startups, executioners of business plans, company fixers – all have guts and fast action in their souls. I’ve also found them very clever and creative. That’s how they became game changers, disruptors.

I wish you The Best on your Adventure!

JOHN