A Crisis is a Terrible thing to Waste (Part 2) – Smoke Signals

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?

1. 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.
2. 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.
3. 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.
4. 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.
5. 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.
6. 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.

Want to turn-around your business and achieve huge results in record time? Contact me to discuss Executive Coaching, Group Facilitation and Management for Hire services. You can learn more at www.ricksalmon.com and at www.xelerator.com.

Rick Salmon is an energetic entrepreneur who believes that this beautiful world that we have created needs our help. Subscribe to this blog to receive frequent updates.

A Crisis is a Terrible Thing to Waste (Part 1)

My own company is in a crisis right now… a real crisis with tough decisions to make, sleepless nights to endure and an impending sense of doom that is like a nasty hangover. A bit of bad luck, bad timing, some strategic mistakes and a global financial crisis have all combined into a witch’s brew of a startup company cash-flow mess. The squeeze we have gotten ourselves into is not all that uncommon for most small business leaders and entrepreneurs. A friend said “just get used to it… the bigger your business, the higher the stakes and the smaller your odds of survival”. Thanks for the depressing thought.

Now before you all start to worry that I am about to throw in the towel, shipwreck the business and go take a job flipping hamburgers at McDonalds, just relax for a moment. I am attacking this situation head-on because...

A Crisis is a Terrible Thing to Waste.

Let the old trees die

While the global finance crisis might be showing some signs of improvement, the outlook for the entrepreneur is still bleak. Without easy access to capital, entrepreneurs cannot grow. A forest without new growth will age quickly just like an economy without new growth will fall. While governments around the world are busy propping up old businesses in order to save jobs, they might just be missing an important point. Old forests are supposed to die in order to make way for the new.

This weekend I read about Joseph Schumpeter, a Czech economist who was a professor at Harvard for over 30 years. His theory was that there is a process he called Creative Destruction, in which after a long period of growth, a crisis must arise. Each crisis creates its own new dynamics and as a result, new technologies will emerge or be used in a new manner. As a result of this, entrepreneur activities will increase, new companies will start and some of the old companies will die off. The old professor believed that this is a natural cleaning process, especially after long periods of sustained growth, and it is necessary because it creates a capacity for new growth.

Early-stage entrepreneurs must have access to capital in order to survive. During the internet boom of the early 1990's we learned that giving huge amounts of money to young and inexperienced entrepreneurs is like inviting the local Hell's Angels group to your house for an all-you-can-drink free beer bash. They will probably drink you dry and trash your house in the process. Even if in small amounts, early-stage entrepreneurs must have access to capital in order to keep their dreams alive and to meet simple milestones for solid growth.

For the representatives from local government who are reading this article, please keep the programs alive that give small loans and grants to early-stage entrepreneurs. Make it easier for them. You can also encourage companies that assist startups by offering them tax breaks and incentives. Make certain your local new growth economy is getting help so that it does not wither and die. When your big old trees come crashing to the ground, it is only the new growth that will sustain you.

For the entrepreneurs who are reading this article, don't give up. This crisis will also pass. They all do. Whether it takes 6 months or 2 years, if you keep your dream alive, you will be positioned for rapid growth when the smoke clears. Get help from companies that promote meetings between local governments, entrepreneurs and venture capital. Keep the faith. Help is on the way.

2 Xelerator Companies pitch to international Venture Capital firms at Norwegian Techtour 2008

Two companies that Xelerator is working with were chosen as finalists in the Norwegian TechTour 2008. Both MobileAxept and RPR Technologies presented their business plans to a group of Norwegian and international investors and Venture Capital companies in Oslo and Stavanger.

The following is from the Tech Tour press release:

"The European Tech Tour will be coming to Norway in August 2008 to meet the most promising start-ups and early stage technology companies from Norway. Applicants will compete to become one of the 25 successful finalists invited to present their business expansion plans to representatives from the global venture capital world. Finalists will receive advice from these venture capital experts and enjoy numerous networking opportunities."

Finalists are assessed and identified by the committee based on six key points:

1. Uniqueness of the technology
2. Solid business model
3. Vision
4. Capability to execute the business plan
5. Targeting relevant markets
6. Quality of management team and track record

MobileAxept was presented by Helge Krøgenes, who is a founding partner at Xelerator and CEO at MobileAxept. RPR Technologies was presented by Rick Salmon, who is also a founding partner at Xelerator and CEO at RPR Technologies.

Links to news articles about the Norwegian Tech Tour:

• Finansavisen, May 18, 2008 (Norwegian) Page 1, Page 2
• EuroInvestor, Aug.28, 2008 (Norwegian) TechTour
• Argentum, Aug.27,2008 (Norwegian) TechTour winners