When I was a boy I loved to watch “Cowboy and Indian” programs on television. The plots were always the same. They usually started with a group of settlers – who were traveling in their covered wagons towards some dream of a better life in a faraway place. Then would come some sort of a crisis. The crisis was usually the Indians. First the Indians would signal their attack by sending up smoke signals that would be visible from far away (because the Indians didn’t have mobile phones). The smart cowboys would see the signals and take cover, but most cowboys would ignore the signals and keep right on moving along until the Indians swooped down from the hills and attacked the wagon train.
When a business ends up in a crisis, it is usually because they fail to pay attention to the smoke signals. Most of the time the signals are there on the horizon, clear and easy to see, yet they choose to ignore them. And then when the Indians swoop down upon them, they are just as surprised each time.
The first stage of any crisis is the realization that a crisis has emerged. Just like with the Indians, it usually comes as a shock but still takes a while before the reality sinks in.
So what can an entrepreneur do to see the signals? What are some of the practical things a startup business can do in order to avoid ending up in a deep crisis?
- Take frequent Reality Checks. Ask yourself tough questions about your business and give yourself honest answers. It is better to face the facts and get prepared than to avoid them and just hope that things will improve.
- Guard your Optimism, but Be Prepared. The Arabs have a saying “Trust in Allah, but tie up your camels”. Optimism for an entrepreneur is essential, but it can sometimes lead to difficult situations. I have observed this many, many times with startup companies.
- Practice sound Financial Planning. I have seen over 100 entrepreneur venture pitches over the past 6 months and very few had done sound financial forecasts and cost analysis. There is a general lack of planning with startups and this is perhaps one of the biggest reasons so many struggle to get early-stage funding.
- Hire a Board of Directors. Most startups have a Board that consists of the 2 young founders and Uncle Bob. You can avoid crisis if you have a good board of advisers who are also minority shareholders and interested in helping your company prosper and grow. Give away shares if you need to, but get the best possible people you can find and ask them to be tough on you. If this is the only thing you do from all the suggestions in this blog entry, then you will still have made a big change.
- Stay close to your customers. Even if you don’t have customers yet, stay close to your target market. Talk with them. Ask them questions. Get their feedback. Make sure you are providing products and services that they don’t just need, but that they really want. I may need a new car for the purpose of basic transportation, but I really want that Audi TT sports car.
- Think Long-term but Act Short-term. What I mean here is that you must keep your focus on the long-term goals and aspirations you have for your business, but you must take short-term action that provides the cash flow and resources to survive and ultimately grow. Many technology companies spend a long time developing their products, but run out of money either before they are completed or before they have been able to sell products and prove that they can generate revenues. It is much easier to get an early-stage investor to put money into your business if you can demonstrate sales revenues. Even if revenues come from services and not product sales, this does not matter. Think long-term, but act in the short-term to bring in revenue and lessen the possibility of a financial crisis for your business.
If you see smoke signals on the horizon, take action immediately. The sooner you do, the less the consequences and the pain of a crisis. If the situation has already swooped down upon you like a tribe of angry Indians, then in the next blog entry I will discuss how to circle your wagons and stage a defense. In the meantime, remember that becoming a successful entrepreneur is about the learning to master the game… and A Crisis is a Terrible Thing to Waste.