Don’t cut costs — be more radical if your market has suddenly stopped.
12 years ago, I was running a international scaleup as our market got wiped out by the credit crunch. Today, many high growth businesses face the same challenge — so here’s what I wish I had done differently and perhaps this time, you will:
*** Lean into the challenge ***
Whatever business model you had — that is now over. If your market has stopped, it has stopped. You need to reinvent.
Cutting costs and hoarding cash — is the same recommendation I heard from smart VCs and advisors in 2008/9— but it didn’t work then and it won’t work now if your market has stopped.
(I know some businesses have seen a surge in demand — eg. conference calls / SaaS — and others whose market demand has collapsed — this advice applies to the latter).
If your market / income has shrunk to (near) zero, no amount of cuts make sense.
So what do you do?
1. Can you place the business in hibernation?
Cut all fixed costs move all costs to variable. This will require hard choices but I found that moving fast is better than slow.
In 2008/9 we cut from 60 to 32 and then 12 — as we attempted to save jobs and keep our business running on a skeleton basis — it didn’t work then, it won’t work now if your income is gone.
Radically rethink how you employ people and contract space and machinery.
Update: 21st of March – the UK has joined other countries in offering some kind of ‘job retention scheme’ where upto 80% of a medium level salary is supported by the UK government. Joining schemes like this fits into the ‘rethink how you employ people’. However, be careful of cashflow issues. UK government announced on 20th March, plans to make payments at the end of April (6 weeks time – many businesses that are running on tight margins or high growth will go bust in those 6 weeks – so dig into your local employment legislation – can you ‘lay-off’ staff in March but take them back on in April – when the money is coming? At the moment, it isn’t clear how this is going to work in the UK – and if it is not clear where you are, then take a ‘survival first’ approach) .
If it is not possible to reduce your fixed costs (for instance, without incurring huge penalties or additional costs) then you have two choices:
2. Could you push your mature scaleup back into startup mode?
Everyone who remains becomes a founder and lives on bread and water plus shares — just as you did when you began?
Then begin to experiment with new solutions and business models in the market space that you know?
Pushing back into the early stage of a business is a really tough decision — it hurts, especially if you are tired and have run the business for years already — but it is your best choice.
Which team members do you take with you? Only those who a) accept the terms and b) enjoy the uncertainty / experimental nature.
As businesses mature, they become more rules and process focused — and hire people who work well in this environment — but often they won’t do well in a roller coaster startup — so have honest conversations with your people. I call this leaning into the challenge.
If it is not possible to reduce your fixed costs (for instance, without incurring huge penalties or additional costs) then you have two choices:
If leaning into the challenge is not possible / doesn’t make sense then:
3. The hardest choice of all is to close the business whilst you are in profit.
This is important as it means you control what happens to the assets and your reputation.
If you wait / delay / hope — then the liquidators will have control and they get paid for every hour they spend asking questions — when you will have no income but your reputation will be on the line and possibly your home too.
We experienced this in 2009 — the liquidators managed to find nothing except excuses to charge £60k because they made a simple job overly complex.
Hence, keep control.
If you close when still liquid then you control what happens to the assets, the brand, the IP of the business and you leave with your reputation in tact and the ability to startup again when things change.
This advice is dependent, of course, on what government support is available — but currently, UK govt is offering only 1.5% of GDP compared to 8.3% in Spain and that leaves many UK based mid sized, owner managed businesses very vulnerable. It may be different in your country or it may change as we go through this crisis.
If you want to look at how to reverse the maturity of your business, this video should explain:
Lastly, if you want to talk to someone who has been there, done that and got the T shirt — get in touch. I won’t charge for businesses that are in distress.
