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A aggregation of CEOs with less than 12 months of capital left impact been
asking me for advice most what to do, given the massive economic
turmoil we’re facing. I thought I would take the time put these
various conversations into one email to help those who are “up against
it,” as we say in Brooklyn.

Now, sprinting to the startup precipice is one of the most horrible
and exhilarating experiences you crapper impact as an entrepreneur.

The exhaustion sinks in as you slam on the brakes. You dig in your
heels and watch the dirt and pebbles fly off the cliff as your left
foot dangles down in the ravine, with your right measure desperately
trying to save you. Your momentum could–if the wind kicks in–send
you straight down to your death. Heck, even the digit inches of earth
under your right measure could give artefact and beam you to your death.  Or,
you could slip and start on a magic carpet that will take you to the
Promised Land.

OK, that last part is made up. You’re belike screwed and you undergo it.

This email is intended for startup companies with less than 12 months
of change in the bank, who undergo in their hearts that their VCs impact lost
faith, and that Google, Yahoo or Microsoft aren’t feat to pick them
up on a magic M&A carpet ride.

This is the email I’d like you to forward to your friends who are
running startups that could go under in 2009.

Some background
————————-
I’ve been to the precipice and faced the start a couple of times. I’ve
learned a couple of things from the experience. I crapper tell you that
the first time it happens, you’re terrified, because everything you’ve
done–all the try and dreams–will belike be lost (like tears in
the rain).

The ordinal time it happens, you’re deeply concerned, but undergo it ain’t
over until you’re splattered on the boulders below.

The ordinal time it happens, you smile and say “let’s intend it on!”

You see, there are digit types of entrepreneurs in this world: actual 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 undergo who’s naked. (Who said
that? I center it on CNBC every other hebdomad now).

The differences between the digit 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 VPs at mega-companies, patch the real
entrepreneurs suit up and clean up the mess.

We’re feat to encounter out who the actual entrepreneurs are in 2009 because
they are feat to spend another 12 months, on top of the last six,
cleaning up the mess. It will be digit years of total pain, so before we
go any further you gotta make the decision if you’re in or you’re out.

In or out?
————————-
Here is a really easy artefact to figure out if you crapper deal with the mess
in front of you. How many of the following crapper you deal with:

1. Laying off half your staff.
2. Laying off half your staff again three months later.
3. Spending 20 hours a hebdomad on the phone existence yelled at and
threatened patch trying to renegotiate a dozen contracts–like your
T1, phone system, rent, equipment leases, etc.
4. Having an investor scream at you and tell you that they will ruin
you, your career and that “you’ll never raise money again, you mother
f-er.”
5. Laying off half your staff for a ordinal time.
6. Getting served a half-dozen lawsuits, courtesy of the folks who you
tried to renegotiate with in saucer number three who wouldn’t deal.
7. Having one of the people you’re renegotiating with become to your
office every hebdomad and ask for their check in person.
8. Having the same media outlet that once claimed you were the next
Barry Diller write that you’re a fraud.
9. Not getting a good night’s sleep for six months.
10. Having dozens of paying clients default on their bills.
11. Having staffers who you really need to double down and focus walk
out the entranceway after you helped make their careers.
12. Have the people who begged you for a meeting at the peak not even
return your emails or phone calls.

If you can’t deal with these 12 situations, then you’re out. It’s time
to refresh your resume, tell your board you resign, sublet your place
and go to Thailand. Go sit on the beach and lick your wounds for $40 a
day (all-in) like the fauxtrepreneur you are. You suck. I hate you.
You’re smart enough to cut your loses in a artefact I could never
understand.

If you think you crapper handle most of the horror above, well, then you’re in.

How do I undergo this?

Those 12 things–and more–happened to me for over a year when Silicon
Alley Reporter, my first business, got whipsawed by the dotcom bust.
We went from $11.6m in revenue one year to $600k the next. From 70
full-time people to 12. From a 20,000 square measure office to subletting
ten desks at a PR firm.

Personally, I went from existence on top of the world, with appearances on
Charlie Rose, 60 Minutes, CNN, and Fox News, to existence savaged in the
press as a fraud who got lucky and who no one would ever center from
again.

My office used to intend 100-200 phone calls a day and I had two
assistants.  Six months later, I answered my own phone–on the rare
occasions it would ring. When it did, it was either my mom calling to
check in on me or a vendor calling to yell at me.

It was the worst year of my life, but it made me who I am today. I’ve
never talked most the aerobatics that my playing went into, and how I
barely managed to land the plane, but I intend the sense that there are a
lot of twenty-somethings most to experience the same thing, and
perhaps my lessons could help.

I’m not feat to tell the story. (That would take 80,000 words, a hard
cover and the right publisher), but I’m gonna share some of the
lessons.

Let’s intend to work.

The Good News
————————-
If you’re a actual entrepreneur, you’re still reading. If you’re a faux
entrepreneur, you’re writing your resignation letter, considering
which beach to surf and how long to grow your beard. God bless you
fauxtrepreneurs, because you’re gonna impact a much nicer 2009 than the
real entrepreneurs who are “up against it.”

Of course, a year from now, the actual entrepreneurs will be
battle-scarred beasts who are capable of attractive big bold risks, and
you’ll still be crying most what could impact been with your last
business patch attending back-to-back meetings most nothing at BigCo.
Not that I’m faultfinding of fauxtrepreneurs who create noise, distract
investors from the actual workhorses, draw at their jobs and take no
real risk in their lives.

No, on the contrary, I love you fauxtrepreneurs, because you create
the foundation upon which actual entrepreneurs stand. At the start of my
career, it wasn’t east to stand out, but by the time I’d done digit or
three businesses and become a fixture in the technology industry, I
had figured it out: Longevity is a big part of credibility. I met
Esther Dyson, Fred Wilson, John Brockman, Jerry Colonna, Mark Cuban,
Ted Leonsis, Seth Godin and countless other luminaries between 1994
and 1997.

Well, it’s a dozen years later and they still take my calls and
respond to my emails.

Longevity is credibility.

Oh yeah, I almost forgot the good news: People’s reputations are made
in the bad times more than the good times.

Even if you’re 100% sure your company is feat to crash in the next
six months, you’ll see more from staying on board than you will from
running. You’ll also earn the attitude of your peers and you’ll learn
exactly how people break down and lose their cool. You’ll see how
certain VCs propellor entrepreneurs, you’ll see entrepreneurs propellor VCS
and you’ll watch the lawyers and landlords collect their vig the
entire time.

Most of all, you’ll realize who you are and who your actual friends are.

So what’s the sitch?
————————-
You need to figure out your runway immediately. This is really easy to
calculate: you look at how much change you burn every month and divide
that into how much change you impact in the bank. Your accountant crapper do
this for you or you crapper simply look at your P&L and slope statement.

Once you undergo how many months you’ve got left, you’ve got to do the
hard work of trying to extend it by at least 1/4. 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 crapper double them. In most cases, if you do these two
simple things, you will impact accumulated your runway by 50-100%. 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 impact 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
vs. Friendster vs. Facebook every having unlimited funds for a period of
time, this makes total sense. Why worry most $100,000 in computer costs
if you’re racing to see who gets bought for a billion dollars first?
However, this is not that time. You impact to change your style. There
are times to impact 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 intend back to Earth. Congratulations, you won the race… and
now you’re dead!

My primary playing right now, Mahalo.com, is lucky to impact raise a
large turn of capital and is feat to fairly easily make it to
profitability based on our growth curve, runway, modest spend and
significant traffic (we’re at 5.6m unequalled visitors over the last 30
days).

We couldn’t be in a stronger position.

However, even we recently did a deep review at Mahalo and were able to
cut 30% of our costs in under 60 days. The company is still growing
just as fast, and in fact we’re actually more efficient. There is
something fantastic most that: 25-person companies seem to intend more
done than 40-person companies in my experience (other CEOs impact told
me the same thing).

Perhaps it’s because after you trim down you impact the most efficient
folks left, or maybe we’re every more focused because we don’t impact to
communicate what’s feat on to as many people? Does anyone undergo if
there is any research on best team size for startups? I’d be
interested to center what the studies say. Anyway, we made the hard
decisions and that extended our runway by a year. That means Mahalo
will be here in 2013 if we make every single wrong decision and we’re
asleep at the wheel. Of course, we’re focused like lasers on getting
to profitability and developing a really helpful service. If we can’t
figure this playing out by 2013 or 2014 then, well, either we really
suck or there is no solution to combining search and knowledge
exchange (of course we undergo search and knowledge exchanges crapper and
have worked–so we’re bullish).

Also, when your company goes through this kind of economic boot camp,
I think you intend stronger. You understand which parts of your business
are employed the best and which ones are, well, not employed at all. We
had one area of our playing that was digit proportionality of our spending
making 30% of our revenue. You figure these things out when you start
cutting. It’s a sick and sad process to be sure, but Darwin is your
friend at a startup.

Put your VCs to the test
————————-
If you’re running out of money, you’ve got three choices: cut costs,
make money or raise capital. We’re feat to intend into cutting costs and
making money below in a minute, but I’m a big fan of investigating your
investors. When the market is crushed, most VCs intend realistic, greedy
or paralyzed. You’ve got to figure out where you stand with your
current investors as quickly as possible, and the quickest artefact to do
that is to ask them for more money.

Let’s say you’re burning $200k a month and you impact a million dollars
in the bank. Go to your VCs and say something like the following:

“John, we’re feat to run out of change in five months. I’ve developed a
cost-cutting and revenue-generating plan that I believe will extend
our runway to 10 months. I’d like to inform it to you and your
partners tomorrow for a half-hour with the goal of doing an ‘A+ round’
of one million dollars. I truly believe in this playing and I’m
willing to do a flat-round, bust my ass for the incoming digit years and
come out of this recession on top.”

Now your VC is belike feat to start asking questions–as they
should. They may try and push off the discussion of the “A+ round.”
Your job is to stand firm and say something to the effect of:

“Well, we’re both vested in this playing and I’d like to take the
time to inform to you guys this hebdomad and intend a response from you
either artefact within five days. I undergo it’s a compressed time frame, but
we’re living in extraordinary times, and if you guys don’t believe in
the playing the artefact I do, I crapper accept that and make other
arrangements.”

At that point, you say nothing. Silence is the greatest negotiating
tactic ever created–use it. Your VC right today will be thinking the
following:

a) “This guy/gal’s a actual dolphin and I wish every my CEOs were this
focused. At the very least, I should center them out.”
b) “This guy/gal has another opportunity, so I’m gonna impact to deal
with this train wreck myself–that will suck.”
c) “This playing is a dog and I shouldn’t impact invested in it. Since
they’re asking for the truth, I might as well give it to them.”
d) “I’m an moron and I can’t make decisions. Let me push this out a
couple of weeks and make this person’s life hell patch I
procrastinate.”

That last part is not what the mortal would actually say, but that’s
basically the translation of “let me think most it.”

Now, in cases a, b, and c you’re in good shape. You’re gonna either
get your meeting and money or you’re gonna intend told you’re not getting
any more funding. Situation D is what you don’t want. If you’re
running out of provisions in the middle of the Atlantic, your best bet
is to go either East or West–not in a circle.

VCs and investors will sometimes beam entrepreneurs in circles, either
inadvertently or as leverage. Sometimes VCs are juggling a aggregation of
balls and can’t focus. Sometimes they’re inexperienced and/or they
have issues that don’t concern your business, like their limited
partners, their partners or their divorce settlements. Sometimes
they’re cutthroat and undergo that, when you’re down to your last digit or
three payrolls, they crapper extract a 2-3x liquidation preference out of
you.

It’s your job to force the issue now–don’t wait.

Heck, even if you impact a year’s worth of runway, you should probably
do this kind of thing so your VCs undergo you’re the actual deal and so you
know where you stand with them.

Put your staff to the test
————————-
If you’re down to six months of cash, you’re gonna impact to cut the
bottom 1/3rd of your staff, if not half. This sucks, but there is no
choice. You’re gonna also impact to cut salaries. So, here are some
suggestions on how to do this:

1. Get rid of the non-core staff. Look in places like PR, marketing,
and admin to cut. See if you crapper put some of these folks on part-time.

2. Look at the salaries of your current staff vs. market and look for
ways to cut the high-priced ones who you crapper intend cheaper at the
current market. I undergo this sounds cutthroat, but remember, this is
advice for folks feat out of playing in six months. Another artefact to
run this test is to ask yourself “Would I lease this mortal for this
amount today?”

3. Go to each member of the team who is over-paid by today’s market
rate and tell them that you’re belike feat to be cutting their
salary and that you’re increasing their options. Ask them how they
feel most it. Some people crapper take a clear cut, others can’t–you don’t
know until you ask.

I’m really against cutting people’s clear above cutting position because
you want the people remaining in your organization to be happy. Of
course, sometimes that’s just not realistic. Many CEOs overpay in a
hot market because they see they impact to, and those folks are the
ones who really need to take this hard action now.

Put your landlord to the test
————————-
Call your landlord and ask them to intend a cup of coffee. Do this in
person. Let them undergo that it’s 50-50 you’re feat out of playing and
that you need their help in the modify of four months liberated rent,
starting today, the ability to sublet some space (if you don’t have
that right already) and to keep the rent at the same rate you already
have. Tell them you see horrible most this, and you wouldn’t ask
them to do this if it wasn’t urgent, but you didn’t want to drop the
bomb on them five months from today when there were no more options.

Remember, silence is your friend. Tell your story and see what they
say. I did this at one saucer and not only got liberated rent, I got 50% of
our letter of credit freed up. It was a win-win. Trust me, your
landlord is belike covering a LOT of fallout right now… better to
get half than nothing.

Put your vendors to the test
————————-
Since you’ve belike got webhosting, CDNs, equipment leases, and
other recurring charges on your credit cards, cancel those cards
immediately. Call up each vendor and tell them you need six months
free patch you figure out your status, and if they can’t do it, ask
for suggestions. Then call each of their competitors and let them know
that you are willing to switch over for the first six months free.  If
you intend one of four vendors to do this you just saved 25%–I bet you
can intend digit or three.

Vendors would rather eat some profits for six months than lose your
business. If they can’t support you in your time of need, then you
should encounter someone who will. There is a LOT of competition out there
and you crapper negotiate harder than you belike think you can. Tell
vendors you’re willing to switch if they give you six months liberated and
see what they say. We’ve had folks offer us a *year* of liberated service
to switch (of course, that’s an exception, not the rule).

Put yourself to the test
————————-
If you’re feat to ask so much of your staff, investors and vendors,
you obviously impact to take a impact yourself. Go to your VCs and ask them
to participate in the incoming round–the A+ round. Tell them you know
it’s not a aggregation but you want to put in $5 or $10k in the round as a
show of support. This will result in them saying it’s not necessary.
After that, tell them you’ll delude your car and take a bike to work and
put $20k into the playing if you crapper intend that for your car. Make sure
your staff doesn’t take a bigger cut than you do in salary if you’re
doing salary cuts.

Even if it’s just ceremonial, it means a aggregation to make cuts. I’ve
stopped traveling as much to conferences even though they cost me
little to nothing (normally people clear me to speak or at least clear for
my travel). Of course, don’t cut traveling if you’re feat to
conferences where you might encounter clients or investors (which is why I
travel half the time!)

Put your product to the test
————————-
As Mark state told me over and over again, “Sales solves everything.”
If you can’t delude your product, it’s not a product–it’s a hobby. Take
your consumer assist and delude it as a software package to someone. Go
on the sales calls yourself. During the final year of Silicon Alley
Reporter I made algid calls and set up lunches to delude folks on our new
product, Venture Reporter (the rebranded Silicon Alley Reporter). It
works. When people see the CEO making sales calls, they attitude the
company and take it seriously. When the VCs and staffers see you doing
this, they intend inspired.

Put a whiteboard up and count any stat you can: sales calls made,
meetings scheduled, contracts sent and sales closed. Give your team
something to think most other than just the bottom line, because you
might impact to celebrate the little victories before getting the check
in the door. Celebrate getting the meeting. Celebrate sending a pitch
out.

What to do if it’s over
————————-
If you’re feat to impact the wall, you should do so with three or four
months of capital left in the bank. You should cut down to your core
staff and tell them “we impact 120 days of change left and we’re feat to
try to land the plane safely. If you want to yield at any saucer during
the 120 days you’ll intend the reference of a lifetime from me. If you
help us land the plane safely I think we’ll every be better off because
of it.”

Then make a plan to do one of the following:

a) delude the business
b) close the business
c) delude the assets of the business

There’s a little bit of overlap up there, since sometimes you close
the playing and delude the assets, or you delude the assets and yield a
shell behind. The saucer is, don’t wait until you impact a month left. Do
it when you impact 120 days left. If you signal to everyone it’s over,
you’ll impact done the honorable thing for your employees, by giving
them the maximum time to impact a safe landing, and for your investors,
by allowing them to roll the playing or its assets into another
company.

The worst thing to do is to delay this process. I’ve gotten down to
this saucer exactly, but when I was at break-even at my first business,
we looked for a buyer, because I didn’t think we had much chance of
making it on our own in the 2001-2002 market. I could impact been wrong
about that in retrospect, but either way, I’m glad I got out because
it set me up for Weblogs, Inc.

And that is the final lesson: when one entranceway closes, three more open
up. When you closed down your playing properly, you will impact a clean
slate and renewed energy to take on your incoming project. You might even
get the investors to give you the company with the 90 days worth of
capital left to start your incoming project with a recapitalized
structure.

Remember that there is no shame in failure but there are honorable and
dishonorable failures. If you’re feat to lose the game, remember that
it’s just that: a game. There will be another and another and another
yet to play. Don’t lose your cool and don’t intend depressed. Just get
yourself back up, dust yourself off and intend back in the game. The
precursor to success is almost always failure.