Today I spent a few hours dealing with one of the "downs" in start-up life. Biggest deal portfolio company X was working on came to a screaming halt. Not important for this posting as to why the deal got pulled -- important is how the company deals with it. As we are still too close to this situation, will not speak to how CEO of company X and us, his board, are working through this issue (but trust us, we are, and will not only survive but thrive).
But do want to point out that CEOs and boards of early stage start-ups need to constantly be ready for "When Everything Goes Wrong." Because inevitably it will! If start-ups do not operate in that mode, i.e. always being ready for the worst case scenario, then they are not being responsible start-upists. VCs who want to play in "seed" stage start-ups either need to be really deep pocketed or really smart (that would be us ....;-)). Being really smart means planning for the worst, and working for the best.
Is that an almost impossible tension to live with on daily basis? Sure, but "buyer beware," "enter at your own risk" to start-up land. If you want to have a guaranteed salary and multi-year job security, well, then get tenure at the nearest university. Yes, Big Company could theoretically provide that job security, but only in theory, because here today and Bear Sterns gone tomorrow...
Back to our main issue, planning for worst scenario, for when everything goes wrong.
Number one, what is your back-up plan? If you need to think about it under fire, you will not be able to think straight. So make sure when everything is going right that you have that plan, constantly updated, just in case.
Number Two, look at your cash. When things "go wrong," will make it obviously much more difficult to raise more money -- and you will need to survive in order to thrive. For most entrepreneurs, going without salary,or reduced salary for some period of time, is acceptable. For staff of start-up, usually more of a stretch. But a charismatic CEO sometimes can stretch it...to a point. People do need to put food on the table.
Number Three, look at your cap table. Know it by heart at all times. You will need to be prepared for intense pressure on cap table both from bringing in new cash (if necessary) and providing incentives to staff.
And finally, just remember that just as things can go all wrong, they can all go all right -- and pray you have just gone through the worst!
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