A catch phrase will go here soon.

What to do if your startup is about fail (or "Don't Stop Believing")

2/27/2009

Location: Mahalo HQ, Santa Monica
Date/Time: February 26th 2009 6:25pm
Subscribers: 12,483
Rock out To This While Reading: Don’t Stop Believing
http://www.youtube.com/watch?v=ip1zsUIosoA
Forward To: Startups that are hitting the wall

A lot of CEOs with less than 12 months of capital left have been
asking me for advice about what to do, given the massive economic
turmoil we’re facing. I thought I would take the time put these
various conversations into one email to help those who are “up against
it,” as we say in Brooklyn.

Now, sprinting to the startup precipice is one of the most horrible
and exhilarating experiences you can have as an entrepreneur.

The exhaustion sinks in as you slam on the brakes. You dig in your
heels and watch the dirt and pebbles fly off the cliff as your left
foot dangles down in the ravine, with your right foot desperately
trying to save you. Your momentum could–if the wind kicks in–send
you straight down to your death. Heck, even the two inches of earth
under your right foot could give way and send you to your death.  Or,
you could slip and fall on a magic carpet that will take you to the
Promised Land.

OK, that last part is made up. You’re probably screwed and you know it.

This email is intended for startup companies with less than 12 months
of cash in the bank, who know in their hearts that their VCs have lost
faith, and that Google, Yahoo or Microsoft aren’t going to pick them
up on a magic M&A carpet ride.

This is the email I’d like you to forward to your friends who are
running startups that could go under in 2009.

Some background
————————-
I’ve been to the precipice and faced the fall a couple of times. I’ve
learned a couple of things from the experience. I can tell you that
the first time it happens, you’re terrified, because everything you’ve
done–all the effort and dreams–will probably be lost (like tears in
the rain).

The second time it happens, you’re deeply concerned, but know it ain’t
over until you’re splattered on the boulders below.

The third time it happens, you smile and say “let’s get it on!”

You see, there are two types of entrepreneurs in this world: real ones
and the folks who play entrepreneurs for some portion of their lives.
From a distance, most folks can’t tell who’s who. In up times, when
the market is flush with cheap money and unexplained exits (Bebo,
anyone?), everyone looks brilliant.

It’s only when the tide goes out that you know who’s naked. (Who said
that? I hear it on CNBC every other week now).

The differences between the two types of entrepreneurs become clear
when the fan and the manure meet. The faux entrepreneurs run for cover
rather than dealing with the storm. They go back to their plush,
somewhat mindless jobs as VPs at mega-companies, while the real
entrepreneurs suit up and clean up the mess.

We’re going to find out who the real entrepreneurs are in 2009 because
they are going to spend another 12 months, on top of the last six,
cleaning up the mess. It will be two years of total pain, so before we
go any further you gotta make the decision if you’re in or you’re out.

In or out?
————————-
Here is a really easy way to figure out if you can deal with the mess
in front of you. How many of the following can you deal with:

1. Laying off half your staff.
2. Laying off half your staff again three months later.
3. Spending 20 hours a week on the phone being yelled at and
threatened while trying to renegotiate a dozen contracts–like your
T1, phone system, rent, equipment leases, etc.
4. Having an investor scream at you and tell you that they will ruin
you, your career and that “you’ll never raise money again, you mother
f-er.”
5. Laying off half your staff for a third time.
6. Getting served a half-dozen lawsuits, courtesy of the folks who you
tried to renegotiate with in point number three who wouldn’t deal.
7. Having one of the people you’re renegotiating with come to your
office every week and ask for their check in person.
8. Having the same media outlet that once claimed you were the next
Barry Diller write that you’re a fraud.
9. Not getting a good night’s sleep for six months.
10. Having dozens of paying clients default on their bills.
11. Having staffers who you really need to double down and focus walk
out the door after you helped make their careers.
12. Have the people who begged you for a meeting at the peak not even
return your emails or phone calls.

If you can’t deal with these 12 situations, then you’re out. It’s time
to refresh your resume, tell your board you resign, sublet your place
and go to Thailand. Go sit on the beach and lick your wounds for $40 a
day (all-in) like the fauxtrepreneur you are. You suck. I hate you.
You’re smart enough to cut your loses in a way I could never
understand.

If you think you can handle most of the horror above, well, then you’re in.

How do I know this?

Those 12 things–and more–happened to me for over a year when Silicon
Alley Reporter, my first business, got whipsawed by the dotcom bust.
We went from $11.6m in revenue one year to $600k the next. From 70
full-time people to 12. From a 20,000 square foot office to subletting
ten desks at a PR firm.

Personally, I went from being on top of the world, with appearances on
Charlie Rose, 60 Minutes, CNN, and Fox News, to being savaged in the
press as a fraud who got lucky and who no one would ever hear from
again.

My office used to get 100-200 phone calls a day and I had two
assistants.  Six months later, I answered my own phone–on the rare
occasions it would ring. When it did, it was either my mom calling to
check in on me or a vendor calling to yell at me.

It was the worst year of my life, but it made me who I am today. I’ve
never talked about the tailspin that my business went into, and how I
barely managed to land the plane, but I get the sense that there are a
lot of twenty-somethings about to experience the same thing, and
perhaps my lessons could help.

I’m not going to tell the story. (That would take 80,000 words, a hard
cover and the right publisher), but I’m gonna share some of the
lessons.

Let’s get to work.

The Good News
————————-
If you’re a real entrepreneur, you’re still reading. If you’re a faux
entrepreneur, you’re writing your resignation letter, considering
which beach to surf and how long to grow your beard. God bless you
fauxtrepreneurs, because you’re gonna have a much nicer 2009 than the
real entrepreneurs who are “up against it.”

Of course, a year from now, the real entrepreneurs will be
battle-scarred beasts who are capable of taking big bold risks, and
you’ll still be crying about what could have been with your last
business while attending back-to-back meetings about nothing at BigCo.
Not that I’m judgmental of fauxtrepreneurs who create noise, distract
investors from the real workhorses, suck at their jobs and take no
real risk in their lives.

No, on the contrary, I love you fauxtrepreneurs, because you create
the foundation upon which real entrepreneurs stand. At the start of my
career, it wasn’t east to stand out, but by the time I’d done two or
three businesses and become a fixture in the technology industry, I
had figured it out: Longevity is a big part of credibility. I met
Esther Dyson, Fred Wilson, John Brockman, Jerry Colonna, Mark Cuban,
Ted Leonsis, Seth Godin and countless other luminaries between 1994
and 1997.

Well, it’s a dozen years later and they still take my calls and
respond to my emails.

Longevity is credibility.

Oh yeah, I almost forgot the good news: People’s reputations are made
in the bad times more than the good times.

Even if you’re 100% sure your company is going to crash in the next
six months, you’ll learn more from staying on board than you will from
running. You’ll also earn the respect of your peers and you’ll learn
exactly how people break down and lose their cool. You’ll see how
certain VCs screw entrepreneurs, you’ll see entrepreneurs screw VCS
and you’ll watch the lawyers and landlords collect their vig the
entire time.

Most of all, you’ll realize who you are and who your real friends are.

So what’s the sitch?
————————-
You need to figure out your runway immediately. This is really easy to
calculate: you look at how much cash you burn every month and divide
that into how much cash you have in the bank. Your accountant can do
this for you or you can simply look at your P&L and bank statement.

Once you know how many months you’ve got left, you’ve got to do the
hard work of trying to extend it by at least 1/4. This means cutting
staff, negotiating with your landlord and cutting any and all
recurring bills. You then need to look at your revenue streams and
figure out if you can double them. In most cases, if you do these two
simple things, you will have increased your runway by 50-100%. If you
double your runway, your chances of figuring out what your business
actually is will go up exponentially.

You also need to do a monthly P&L review with your management team.
Look at every single recurring cost you have and figure out how to cut
it. In an up market, this level of obsessiveness is often wasteful,
because you’re in a race to take market-share. In the case of MySpace
vs. Friendster vs. Facebook all having unlimited funds for a period of
time, this makes total sense. Why worry about $100,000 in server costs
if you’re racing to see who gets bought for a billion dollars first?
However, this is not that time. You have to change your style. There
are times to hit the gas and there are times to conserve your gas.

Look at it this way: Getting the most market-share and running out of
cash is the equivalent of getting to the moon first without the
ability to get back to Earth. Congratulations, you won the race… and
now you’re dead!

My primary business right now, Mahalo.com, is lucky to have raise a
large amount of capital and is going to fairly easily make it to
profitability based on our growth curve, runway, modest spend and
significant traffic (we’re at 5.6m unique visitors over the last 30
days).

We couldn’t be in a stronger position.

However, even we recently did a deep review at Mahalo and were able to
cut 30% of our costs in under 60 days. The company is still growing
just as fast, and in fact we’re actually more efficient. There is
something strange about that: 25-person companies seem to get more
done than 40-person companies in my experience (other CEOs have told
me the same thing).

Perhaps it’s because after you trim down you have the most efficient
folks left, or maybe we’re all more focused because we don’t have to
communicate what’s going on to as many people? Does anyone know if
there is any research on optimal team size for startups? I’d be
interested to hear what the studies say. Anyway, we made the hard
decisions and that extended our runway by a year. That means Mahalo
will be here in 2013 if we make every single wrong decision and we’re
asleep at the wheel. Of course, we’re focused like lasers on getting
to profitability and developing a really helpful service. If we can’t
figure this business out by 2013 or 2014 then, well, either we really
suck or there is no solution to combining search and knowledge
exchange (of course we know search and knowledge exchanges can and
have worked–so we’re bullish).

Also, when your company goes through this kind of economic boot camp,
I think you get stronger. You understand which parts of your business
are working the best and which ones are, well, not working at all. We
had one area of our business that was two percent of our spending
making 30% of our revenue. You figure these things out when you start
cutting. It’s a sick and sad process to be sure, but Darwin is your
friend at a startup.

Put your VCs to the test
————————-
If you’re running out of money, you’ve got three choices: cut costs,
make money or raise capital. We’re going to get into cutting costs and
making money below in a minute, but I’m a big fan of testing your
investors. When the market is crushed, most VCs get realistic, greedy
or paralyzed. You’ve got to figure out where you stand with your
current investors as quickly as possible, and the quickest way to do
that is to ask them for more money.

Let’s say you’re burning $200k a month and you have a million dollars
in the bank. Go to your VCs and say something like the following:

“John, we’re going to run out of cash in five months. I’ve developed a
cost-cutting and revenue-generating plan that I believe will extend
our runway to 10 months. I’d like to present it to you and your
partners tomorrow for a half-hour with the goal of doing an ‘A+ round’
of one million dollars. I truly believe in this business and I’m
willing to do a flat-round, bust my ass for the next two years and
come out of this recession on top.”

Now your VC is probably going to start asking questions–as they
should. They may try and push off the discussion of the “A+ round.”
Your job is to stand firm and say something to the effect of:

“Well, we’re both vested in this business and I’d like to take the
time to present to you guys this week and get a response from you
either way within five days. I know it’s a compressed time frame, but
we’re living in extraordinary times, and if you guys don’t believe in
the business the way I do, I can accept that and make other
arrangements.”

At that point, you say nothing. Silence is the greatest negotiating
tactic ever created–use it. Your VC right now will be thinking the
following:

a) “This guy/gal’s a real killer and I wish all my CEOs were this
focused. At the very least, I should hear them out.”
b) “This guy/gal has another opportunity, so I’m gonna have to deal
with this train wreck myself–that will suck.”
c) “This business is a dog and I shouldn’t have invested in it. Since
they’re asking for the truth, I might as well give it to them.”
d) “I’m an idiot and I can’t make decisions. Let me push this out a
couple of weeks and make this person’s life hell while I
procrastinate.”

That last part is not what the person would actually say, but that’s
basically the translation of “let me think about it.”

Now, in cases a, b, and c you’re in good shape. You’re gonna either
get your meeting and money or you’re gonna get told you’re not getting
any more funding. Situation D is what you don’t want. If you’re
running out of provisions in the middle of the Atlantic, your best bet
is to go either East or West–not in a circle.

VCs and investors will sometimes send entrepreneurs in circles, either
inadvertently or as leverage. Sometimes VCs are juggling a lot of
balls and can’t focus. Sometimes they’re inexperienced and/or they
have issues that don’t concern your business, like their limited
partners, their partners or their divorce settlements. Sometimes
they’re cutthroat and know that, when you’re down to your last two or
three payrolls, they can extract a 2-3x liquidation preference out of
you.

It’s your job to force the issue now–don’t wait.

Heck, even if you have a year’s worth of runway, you should probably
do this kind of thing so your VCs know you’re the real deal and so you
know where you stand with them.

Put your staff to the test
————————-
If you’re down to six months of cash, you’re gonna have to cut the
bottom 1/3rd of your staff, if not half. This sucks, but there is no
choice. You’re gonna also have to cut salaries. So, here are some
suggestions on how to do this:

1. Get rid of the non-core staff. Look in places like PR, marketing,
and admin to cut. See if you can put some of these folks on part-time.

2. Look at the salaries of your current staff vs. market and look for
ways to cut the high-priced ones who you can get cheaper at the
current market. I know this sounds cutthroat, but remember, this is
advice for folks going out of business in six months. Another way to
run this test is to ask yourself “Would I hire this person for this
amount today?”

3. Go to each member of the team who is over-paid by today’s market
rate and tell them that you’re probably going to be cutting their
salary and that you’re increasing their options. Ask them how they
feel about it. Some people can take a pay cut, others can’t–you don’t
know until you ask.

I’m really against cutting people’s pay above cutting position because
you want the people remaining in your organization to be happy. Of
course, sometimes that’s just not realistic. Many CEOs overpay in a
hot market because they feel they have to, and those folks are the
ones who really need to take this hard action now.

Put your landlord to the test
————————-
Call your landlord and ask them to get a cup of coffee. Do this in
person. Let them know that it’s 50-50 you’re going out of business and
that you need their help in the form of four months free rent,
starting today, the ability to sublet some space (if you don’t have
that right already) and to keep the rent at the same rate you already
have. Tell them you feel horrible about this, and you wouldn’t ask
them to do this if it wasn’t urgent, but you didn’t want to drop the
bomb on them five months from now when there were no more options.

Remember, silence is your friend. Tell your story and see what they
say. I did this at one point and not only got free rent, I got 50% of
our letter of credit freed up. It was a win-win. Trust me, your
landlord is probably facing a LOT of fallout right now… better to
get half than nothing.

Put your vendors to the test
————————-
Since you’ve probably got webhosting, CDNs, equipment leases, and
other recurring charges on your credit cards, cancel those cards
immediately. Call up each vendor and tell them you need six months
free while you figure out your status, and if they can’t do it, ask
for suggestions. Then call each of their competitors and let them know
that you are willing to switch over for the first six months free.  If
you get one of four vendors to do this you just saved 25%–I bet you
can get two or three.

Vendors would rather eat some profits for six months than lose your
business. If they can’t support you in your time of need, then you
should find someone who will. There is a LOT of competition out there
and you can negotiate harder than you probably think you can. Tell
vendors you’re willing to switch if they give you six months free and
see what they say. We’ve had folks offer us a *year* of free service
to switch (of course, that’s an exception, not the rule).

Put yourself to the test
————————-
If you’re going to ask so much of your staff, investors and vendors,
you obviously have to take a hit yourself. Go to your VCs and ask them
to participate in the next round–the A+ round. Tell them you know
it’s not a lot but you want to put in $5 or $10k in the round as a
show of support. This will result in them saying it’s not necessary.
After that, tell them you’ll sell your car and take a bike to work and
put $20k into the business if you can get that for your car. Make sure
your staff doesn’t take a bigger cut than you do in salary if you’re
doing salary cuts.

Even if it’s just ceremonial, it means a lot to make cuts. I’ve
stopped traveling as much to conferences even though they cost me
little to nothing (normally people pay me to speak or at least pay for
my travel). Of course, don’t cut traveling if you’re going to
conferences where you might find clients or investors (which is why I
travel half the time!)

Put your product to the test
————————-
As Mark Cuban told me over and over again, “Sales solves everything.”
If you can’t sell your product, it’s not a product–it’s a hobby. Take
your consumer service and sell it as a software package to someone. Go
on the sales calls yourself. During the final year of Silicon Alley
Reporter I made cold calls and set up lunches to sell folks on our new
product, Venture Reporter (the rebranded Silicon Alley Reporter). It
works. When people see the CEO making sales calls, they respect the
company and take it seriously. When the VCs and staffers see you doing
this, they get inspired.

Put a whiteboard up and count any stat you can: sales calls made,
meetings scheduled, contracts sent and sales closed. Give your team
something to think about other than just the bottom line, because you
might have to celebrate the little victories before getting the check
in the door. Celebrate getting the meeting. Celebrate sending a pitch
out.

What to do if it’s over
————————-
If you’re going to hit the wall, you should do so with three or four
months of capital left in the bank. You should cut down to your core
staff and tell them “we have 120 days of cash left and we’re going to
try to land the plane safely. If you want to leave at any point during
the 120 days you’ll get the reference of a lifetime from me. If you
help us land the plane safely I think we’ll all be better off because
of it.”

Then make a plan to do one of the following:

a) sell the business
b) close the business
c) sell the assets of the business

There’s a little bit of overlap up there, since sometimes you close
the business and sell the assets, or you sell the assets and leave a
shell behind. The point is, don’t wait until you have a month left. Do
it when you have 120 days left. If you signal to everyone it’s over,
you’ll have done the honorable thing for your employees, by giving
them the maximum time to have a safe landing, and for your investors,
by allowing them to roll the business or its assets into another
company.

The worst thing to do is to delay this process. I’ve gotten down to
this point exactly, but when I was at break-even at my first business,
we looked for a buyer, because I didn’t think we had much chance of
making it on our own in the 2001-2002 market. I could have been wrong
about that in retrospect, but either way, I’m glad I got out because
it set me up for Weblogs, Inc.

And that is the final lesson: when one door closes, three more open
up. When you shut down your business properly, you will have a clean
slate and renewed energy to take on your next project. You might even
get the investors to give you the company with the 90 days worth of
capital left to start your next project with a recapitalized
structure.

Remember that there is no shame in failure but there are honorable and
dishonorable failures. If you’re going to lose the game, remember that
it’s just that: a game. There will be another and another and another
yet to play. Don’t lose your cool and don’t get depressed. Just get
yourself back up, dust yourself off and get back in the game. The
precursor to success is almost always failure.

[ To the 17 folks who made it to the bottom: If you're struggling with
failure right now, if your business is failing and you don't think you
can go on, remember that at the very least you've been lucky enough to
take your shot. That's more than most people get. You're going to be
much stronger for getting through the heartbreak of a failed business.
Also, you've always got me--your pal Jason--if you need a shoulder to
cry on. I'm only an email, tweet or IM away jason@calacanis or
jasoncalacanis on skype/twitter/AIM. ]

  • Sam Philp

    Thank you for writing that article, it offered me some insight
    into my future and some reassurance that I am better off fighting
    on. The idea of returning back to the corporate work place revolts me
    and I just want to see this thing out. And if it all falls down
    then I will pick myself up, make sure I taken in the lessons from
    the crash then start all over.

  • http://uxhero.com Nathan Bowers

    Great post, especially liked the “sales solves everything” quote and tweeted about it.

    Off Topic request: Would it be possible to turn up the contrast on your blog? Gray on white is hard on my old eyes.

  • http://gianouts.blogspot.com Simon Gianoutsos

    Thanks Jason for this excellent post. Lots of great advice.

  • http://www.webchutney.com Rahul Nanda

    Jason, this is a great Article (almost a Ballad), it certainly got me introspecting.
    In these times of Economic difficulties one doesn’t always need Inspiration (from other people) but sometime just a dose of reality check, which you provided. Cheers!

  • http://varunmayan.blogspot.com Varun Mahajan

    Your font colo(u)r is not easy to read. Make it a bit darker

  • James

    Fabulous article. Thank you.

  • http://www.sharpio.com Eric Wu

    Great article Jason. Appreciate the insight. The most difficult part in our adaption to this economic storm is understanding when to cut costs if we’re doing well. Do you cut costs now in anticipation or continue to ride momentum in hopes of greater market share?

  • http://simplyalbert.blogspot.com Albert Lai

    Damn Jason, that was awesome.

    Gone though 5+ startups.

    I’ve been a variation of those 12 situations before with a couple of them.

    It was the best thing to have ever happen to me.

    Now everything seems like a walk in the park.

    IMO, probably your best post yet.

  • http://www.killerblog.com/the-jason-calacanis-real-entrepreneur-test/ The Jason Calacanis Real Entrepreneur Test | KillerBlog

    [...] What to do if your startup is about fail (or “Don’t Stop Believing”) (calacanis.com) [...]

  • Jerry

    Brilliant buddy. I’m sending the link to this to all my
    coaching clients.
    Jerry

  • Kevin

    Jason
    Nice post, I enjoyed it and it brought back memories. I have never
    done a tech start up but I am now on business #3 in other fields.
    My first business was an apparel company. We (mostly I) blew us up
    on a single event where we invested most of our capital and got hammered.
    I will never forgot the helpless feeling I had as it set in that we were done
    I can still see a container full of dated event stuff just sitting there.
    I can still remember explaining to my private investors how I had
    lost all our money. As you can imagine it was not a fun conversation.
    The saving grace for them was that while they lost some of their
    money I lost all of mine through to be honest this was of minimal
    consolation to me at the time ;-)
    It took me a while to get over it but fast forward to years later
    I now have a successful consulting business and I am sitting with a
    random guy in a bar telling stories about how dumb I was and explaining
    “I may not always know what works, but I sure know what doesn’t”.
    Turned out he was a partner in a chain of pathology clinics (basically the
    perfect client for me). I’ll never forget what he said, “I’d much rather
    work with a person like you than someone with a perfect rack record.”
    I am living proof that you are judged not only by your successes but
    by what you did AFTER you “failed. The irony is now my clients are
    ALWAYS more interested in hearing how I screwed up than when I
    was right. So I’ve got that going for me. Any Jason is right
    the champions always finish the game, no matter what the outcome.

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  • http://myphillynetwork.com/archives/1166 AnthonyF

    Thanx for being a cool dude…

  • AllYouCanAlex

    Sweet post!

  • http://www.activeconversion.com Terry Sydoryk

    Great post/reading! “That which doesn’t kill you only makes
    you stronger!” ….. it’s tough, but as you state, that’s
    where the learning happens.

  • Fat_Anarchy

    Excellent post Jason. I found it to be very interesting reading. Although I myself am not a startup company, it is something I am looking into very seriously, and posts like this give me a very good insight into what is needed to survive at it. Keep up the good work. I enjoy your writing style too, as it is very easy to read and understand. I wish you the best of luck in surviving this current economic climate. As long as you stick to the principles outlined here, I think you’ll do fine :D

  • matt

    excellent, funny, and accurate.

  • http://tinycomb.com/2009/02/27/jason-calacanis-wants-to-help-your-struggling-startup/ tinyComb » Blog Archive » Jason Calacanis Wants To Help Your Struggling Startup

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  • http://blog.eliotsykes.com/ Eliot Sykes

    Hi Jason,

    Thank you for sharing this great post.

    One gem in this post is how you and others have found 25 person companies more productive than 40 person ones – I’m wondering now what roles in what quantity you’d expect to find in 25 person companies you’ve been involved with, is there a typical pattern, say for example 1 CEO, 5 Salespeople, etc., etc.?

  • http://blog.copress.org/2009/02/28/this-is-what-failure-looks-like/ This is what failure looks like « CoPress Team Blog
  • http://http.//www.dotcoma.it Massimo

    Jason, thank you so much for sharing this with us! I’ll read it again,
    and again, and again. And yes, sometimes going to Thailand is the right thing to do :)

  • http://http.//www.dotcoma.it Massimo

    p.s.
    your comment box is acting a little weird: I keep on writing, but the system pushes me to a new line not at the end of the comment box, but only at the end of the page, and I do not see what I’m typing once I exceed the length of the box and before I get to the end of the page andget pushed to a new line.

  • http://simeons.wordpress.com/2009/03/02/the-responsibility-of-an-entrepreneur/ The Responsibility of an Entrepreneur « HighContrast

    [...] by Simeon Simeonov in VC, Venture Capital, startups. trackback Jason Calacanis has written a lengthy post with a lot of good advice for entrepreneurs who are facing the potential failure of their business. [...]

  • http://simeons.wordpress.com/2009/03/02/the-responsibility-of-an-entrepreneur-when-to-shut-down-a-startup-early/ The responsibility of an entrepreneur: when to shut down early? « HighContrast

    [...] by Simeon Simeonov in VC, Venture Capital, startups. trackback Jason Calacanis has written a lengthy post with a lot of good advice for entrepreneurs who are facing the potential failure of their business. [...]

  • http://simeons.wordpress.com/ Simeon Simeonov

    Lots of good advice here, though I’m not sure I 100% agree
    with the “believe at all cost” mentality. It’s at the root
    cause of many startups taking too long to fail.

    My thoughts are here: http://simeons.wordpress.com/2009/03/02/the-responsibility-of-an-entrepreneur-when-to-shut-down-a-startup-early/

  • http://www.philipppetrescu.de/2009/03/kurzes-update/ “Kurzes” Update | Philipp Petrescu

    [...] Businessplan für meine neuste Idee geschrieben (noch top secret), viele Blogs gelesen (als letztes das hier), Playstation 3 gespielt, oder was auch immer… (die Liste könnte noch ewig weitergehen) – [...]

  • Mortesa Dariani

    One of the best blog posts i’ve read in the last months. don’t
    know why nobody is commenting, but thanks for the input. Will
    print it out and hang it on my wall :)

  • http://www.kikabink.com/news/990/what-to-do-if-your-business-is-on-the-brink-of-failure/ What To Do If Your Business is On The Brink of Failure

    [...] Jason Calacanis, “What to do if your startup is about fail (or “Don’t Stop Believing”),&… Share and [...]

  • http://www.escrowcoord.com Diana

    My college son sent me this link and I’m so glad he did.
    You are a wonderful writer. Your step by step instructions
    are clear and make sense. Hopefully, I’ll make it through
    these hard times. You are so right when you say the
    survivors get respect. I wear my badges of honor and
    business battlescars with pride!

  • http://twopointoh.wordpress.com/ Paul Lomax

    Brilliantly put. A lot rings true from my own experiences – both things I did and things I wish I’d done…

  • http://twopointoh.co.uk/2009/03/04/links-for-2009-03-03/ links for 2009-03-03 « Paul Lomax – Two Point Oh

    [...] What to do if your startup is about fail (or “Don’t Stop Believing”) « The Jason Calacanis We… [...]

  • Mark

    Great article – came via the BW site. Thanks for spurring us on in these times.

  • http://twitter.com/journik bob wan kim

    Jason. You’ve earned my respect yet once again.

  • http://www.vrogger.com Vrogger

    Wow, super informative article. Excellent read and can be
    applied to any business or self-employment.

    Would love to read that book if you ever do write it.

    twitter.com/vrogger

  • http://www.ipcybercrime.com HolmesPI

    Nice piece. My biz is hitting some of those times and you echoed exactly what I have been telling myself. Thanks!

  • http://www.tinymassive.com @TinyMassive

    Well said. Bring it, that’s what I say =)

    And to quote Bob Parsons rule #4 (hey, I LOVE this stuff)

    “If it doesn’t work, they can’t eat you.”

    And..

    “Very seldom will the worst consequences be anything like
    as bad as the undefined consequences you imagine.”

  • Josh

    Jason, great post. Thanks for sharing your experience.

  • http://www.rhondakwrites.com RhondaK

    I made it to the bottom. I’m looking at leasing a store this weekend facing what we all know to be true, but I’m doing it anyway. I enjoyed your ballsy whipsaw approach. I just have my heart, some ideas and sweat equity — not 25 people. But this worked well for me. Thank you. Thank you very much.

  • http://davedigerati.com Dave

    Wow. That was probably the best, most relevant insight into startups that I’ve read in the last month. I’m a survivor of one and entering my second now, and I can relate to so much of what you said when thinking of my first ‘plane crash’- I actually touched it down with some salvageable parts, not many, but reading this first would have been helpful! Be sure to tweet when/if you publish that book you mentioned, I’m first in line.

  • http://powerpointology.com CTodd

    Sobering reading. For someone on the sidelines of the entrepreneurial game for some time I am eager to jump in. And I mean really, really jump in…

  • http://www.voeveo.com Annabel

    Jason – thanks! That’s exactly what I needed to read right now.
    I really appreciate the time you took to put this all down.
    Best,
    Annabel

  • Peter

    Jason,

    That is some post. Congrats on this and all you have accomplished. I was one of the people who followed you when you were here in New York and read the ups and downs. Do not remember exactly what I believed you were or weren’t back then, but in the last couple of years I know I have been impressed by what you have done and do on a daily basis.

    All the best,

    Peter

    PS: My business is dying these days. This was the kick in the pants I needed

  • http://www.bryandewberry.com Bryan

    Jason, great post. I’ve never been involved with a startup so
    I have no experience with it. Your post, though, makes sense
    from a business perspective. If you know it’s going down the
    the tubes there’s no sense in keeping the bad news to yourself.
    As the saying goes, bad news doesn’t get better with time. Deal
    with it, formulate a plan, and don’t burn bridges. It’s tough times like this that
    can really tell you what you’re made of.

  • http://www.thevillagesq.com Jake Pearce

    Jason
    Thanks for taking the time to write this. I personally have been knocked out in the ring a couple of times and it hurts with a capital H. One thing I’d add – in terms of turning things around from my own experience is learning how to focus on the people that love you and getting them doing your promotion for you. Cheers
    Jake Pearce

  • http://buzzfactoryinc.com Manny S

    Fantastic post! Much of what you wrote hit home.
    Thanks for the great (and honest) advice.

  • http://logic-shop.blogspot.com Margaret

    Hello Jason,

    Thanks you very much for this. I even listened to the song
    while I read, and it did help make the moment. There has been
    a lot of media attention focused on VCs, Angels, Big Business,
    and how start-ups need to save the economy, but little focus
    on the actual experience of entrepreneurs in the current
    economic environment.

    Thanks for remembering that we’re real people, who are really
    struggling, and really throwing our whole lives at making
    these companies succeed in a time when mere survival is a
    questionable prospect.

    I’ve added you to my twitter follows and you may just get an
    email from me one of these days. In the mean time, I have
    some financial obligations to renegotiate.

  • jason

    I definitely take issue with this:
    1. Get rid of the non-core staff. Look in places like PR, marketing,
    and admin to cut. See if you can put some of these folks on part-time.

    How are you going to make money if people don’t know that you exist? I would look to admin, for sure, but Marketing is key for early-stage companies.

  • http://www.kikabink.com/news/1000/is-it-better-to-sack-people-or-cut-everyones-pay/ Is It Better to Sack People… Or Cut Everyone’s Pay?

    [...] Jason Calacanis, “What to do if your startup is about fail (or “Don’t Stop Believing”),&… Share and [...]

  • http://www.scholarlysunrise.wordpress.com Francis

    That was a great read. We only over see headlines of failure, so it’s rare to get any specifics.

    Jason, thank you for sharing your story, there are many lessons in it and I hope I can learn them. Hopefully without going through every single lesson myself.

    Congratulations on keeping your flame burning, and burning brightly. You are an inspiration to the rest of us.

  • http://byjoeybaker.com/2009/03/06/links-for-february-26th-through-march-5th/ LINKS | for February 26th through March 5th | byJoeyBaker

    [...] What to do if your startup is about fail (or “Don’t Stop Believing”) The Jason Cal…: It’s a how-to guide on how to save your VC funded business. Or how to close it down. Told by one who knows, this is a must read _before_ you get into the startup world. [...]

  • http://www.dailysense.com/?p=116 Daily Sense | Daily drips of not so common sense…

    [...] What to do if your startup is about fail (or “Don’t Stop Believing”) [...]

  • http://blog.truereckoning.com/?p=77 True Reckoning Blog » Is your Startup in Trouble? What now?

    [...] on how Jason Calcanis covered this topic in his post last month, I’ve tried to provide a list of 5 key areas you need to make sure you’ve got [...]

  • http://www.logsavvy.com Mark Searle

    Hi Jason, you and I met when you and ‘Venture Reporter’ named my last company one of the “Top 100 Venture-Backed Companies of 2002.”
    Thanks for the great post, it’s nice to see that your suggestions have tracked almost perfectly with the steps we’ve taken in my current (failing) startup. The only comment I would add is to acknowledge the extra challenges involved if you were “going it alone” without VC investment, as I was this time (actually the old plan had been to raise Series A in Q4 ’08 with 2+ yrs. of operations behind us — oops).
    In our self-funded/bootstrapped state, even in the best of times we were often living with a rolling 6 to 12 weeks of cash on hand, so deciding finally to go down the asset sale path 120 days out, as you suggest, wasn’t possible. I pushed that decision off until about ninety days past zero, after doing everything else we could think of (i.e. following your checklist without having the checklist!).
    The other hassle in the self-funded/bootstrapped side of life is the extra dimension associated with potential personal bankruptcy, having invested all of one’s savings, IRA funds and personal credit card advances into the business as well. Even aside from the fear/terror that arises (and increases the risk of depression and paralysis, at least in my case), dealing with all the personal creditors also begins to consume a lot of time that gets in the way of getting the assets sold.

  • http://wizz-e.com Jeanette

    Jason – I was one of the 17 who made it to the bottom with you! Thank you for the inspiration. I’m dusting myself off and back at it! Cheers

  • http://www.digiqom.com Jay

    Jason, I will surely buy the hard cover version of this post, when it comes out!
    Every word here rings with the truth of experience, the gut wrenching
    feeling that these situations bring, and the hope- oh, the
    high octane hope, that all entrepreneurs inhale, when they hold
    onto their idea and run, run, run!
    And yes! like the micro-climate in the Valley,
    sales solves everything!

    will keep watching this space, esp. for dry humor- i.e.
    fauxpreneurs!
    cheers,
    Jay

  • http://nickpoint.co.uk/2009/03/24/inside-dragons-den-rachel-elnaugh-startup-lessons/ Inside Dragons’ Den & Rachel Elnaugh startup lessons « Nickpoint

    [...] You will go through a ‘Dark period’ (the ‘pit‘) – When the knock backs get too hard or they come too often you may loose all hope. Keep the faith and keep believing as this entrepreneur did. [...]

  • http://weblog.blogads.com/1852/calacanis-count Blogads Weblog: Calacanis counts

    [...] Calacanis, the Donald Trump of the interwebs, has written an adrenalized chest-thumping column on living near the edge. I’ve been to the precipice and faced the fall a couple of times. I’ve learned a couple of [...]

  • http://viralogy.com/blog/hot-topics/startup-philosophies-loic-le-meur-vs-jason-calacanis/ Startup Philosophies: Loic Le Meur vs Jason Calacanis | Viralogy Blog

    [...] sure he has five years of runway to build up the Mahalo empire. He also has some insights about a team of 25 employees get more things done than a team of 40 employees(to this day, I still don’t get what a team of 120 engineers [...]

  • http://www.rickfalls.com bigpicturerick

    Hey Jason,

    Thank you !

    It’s really great to be hearing from someone who is
    “the real deal” instead of a bunch of talking head
    wimps about the theories of business.

    You are dead on when you say that a year or so from
    now WE will be celebrating and the whiners will still
    be whining.

    Seriously Jason, Thanklk you for telling it like it
    is and having the guts to step up and or fall and then
    the further courage to openly talk about it.

    I Love you man !

  • evelyn

    Thanks so much for this article. I was feeling so
    depressed about my situation thinking I’m a failure
    but after reading your article – it gave me hope and let
    me know that what I’m experiencing is pretty normal in
    any company crisis and I have nothing to be ashamed of.

  • jay

    thanks for taking the time out to write this article its 5:35 a
    am and I just lost everything i had in my business I dont even have a moth
    worth of cash left. I laid of all my staff and closed my office
    its very painful and looking back I can see how i I blew it. thank you
    for the article.

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English Bulldog

Hello, my name is Jason. Welcome to my blog on the interwebs. You can reach me on twitter @jason and by email at jason@inside.com. My Skype is jasoncalacanis, and my mobile phone is 310-456-4900.

I only pick up numbers I recognize, and in terms of emailing me, the best strategy is to write short, blunt and to the point requests. I can quickly respond to short messages, and many times I simply don't have the time to read five page pitches. In terms of taking meetings, I only do that after reviewing an actual product (not a business plan). So, the best time to ping me is when you have mockups or an alpha site. I don't read business plans, and I've never written one.

Other twitter accounts you can follow: Inside.com, Ticker, This Week in Startups and LAUNCH Festival

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