Silicon Valley Business School
Management Maneuvers—Navigate a Cash Crisis
Preparation for Cash Crisis, Cost Cutting and other Maneuvers

You may have the best team, product and technology in the world, but the company is sure to hit the rocks if it runs out of cash. You’re going to have to learn how to avoid and escape a cash crisis if you’re going to have any chance of success as a startup entrepreneur.

Companies can run out of cash and die at virtually any stage of development. After a crash, its not unusual for the management and board of directors to claim to be the poor innocent victims of a cash crisis that crept up and blindsided them. Of course, looking back, we can all spot the warning signals, but in the heat of the moment, these signals are often undetected, or ignored. It is possible to find yourself blindsided if you don’t take your bearings on a regular basis. When you know where to look, it’s not difficult to detect a distant or looming cash crisis.

After exploring these materials, you should be armed with a better understanding of how you can find yourself heading for cash crisis and a variety of strategies and ideas to help you navigate the company through this difficult terrain.

Cash Crisis Management
After taking your bearings, detecting a distant or looming cash crisis and fixing your position somewhere on the slippery slope to cash crisis, you’re faced with an interesting range of options:

a) Ignore your findings and blindly soldier on.
b) Spend valuable time trying to figure out where and why you went off track.
c) Point fingers to apportion blame.
d) Become despondent and do nothing.
e) Prepare a plan and take action to cut costs, raise funds and get back on track.
f) Produce a hockey stick sales forecast so the crisis magically disappears.
g) Attack the navigator.

If you selected e)—congratulations! You get to continue on the journey with at least a chance of success. Many companies seem to select option a) in conjunction with f)—they make a few tweeks to the sales spreadsheet, take little or no action to avert the crisis and end up crashing, in spectacular fashion. The options open to management include the following:

  • Accelerate Fundraising Efforts.
  • Accelerate M&A Efforts.
  • Execute Momentum Maneuvers.
  • Prepare for More Radical Maneuvers.

Slashing Costs Often Means Reinventing the Company
Slashing costs can change the capabilities of a business so significantly that it needs to be reinvented. The business plan, and the business model are often completely transformed following a cost-slashing exercise. For example, a product company can emerge from a reinvention maneuver as a consulting company--after shedding the costs associated with developing and marketing a product, the Company could be more successful, and ultimately more profitable after emerging with a service-oriented business model. Of course, not all reinventions result in service companies and this is just an example of how a cost-slashing exercise can result in an extensive rethinking of the business and its operations.
Preparing to Navigate a Cash Crisis:
 
  • Prepare Orderly Shutdown Plan
  • Investigate Realistic Fundraising Options

  • Steps in the Cost-Cutting Process:
     
  • Decide to Reduce Headcount
  • Appoint Cost-Cutting Team
  • Draw Up Layoff Lists
  • Hold Layoff/Termination Interviews
  • Hold Layoff/Termination Follow Up Meetings
  • Cut Costs: General Cost-Cutting

  • Steps in the Process of Slashing Costs:
     
  • Win Board Approval to Slash Costs
  • Appoint Team to Slash Costs
  • Gather Staff Input
  • New Company Vision & Mission
  • New Product Strategy
  • New Marketing Strategy
  • New Business Plan
  • Scale Down
  • SVBS Learning Materials Related to this Maneuver ~ From SVBS Online Courses

  • Bankruptcy: Introduction – Source of Law
  • Bankruptcy: Navigating a High Tech Startup through Cash Crisis
  • Bankruptcy: Corporate Insolvency ~ Chapter 11 Reorganization
  • Bankruptcy: Chapter 7 Bankruptcy & Liquidation
  • Raising Finance: The Startup Business Plan
  • Bankruptcy: Secured Transactions
  • Bankruptcy: Bankruptcy Relief for Individuals & Sole Proprietors
  • Entrepreneurship: Business Momentum ~ Radical Momentum Maneuvers
  • Marketing: Marketing for Startup Ventures