How Should You Handle Desperation?
“I think we should shut down the company,” “Raul”, one of our two investors, said to me during our board meeting.
We were in the middle of raising our Series B funding, and we already had one term sheet in hand. Raul had rejected the term sheet after initially accepting it.
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Raul’s flip-flopping the past several months on the term sheet and other matters related to the company’s financing had put us in the position of being out of money. We were living on bridge loans, and that is not a strong position to be in if you’re a startup.
But we had four investors that were getting pretty close to giving us another term sheet. So Raul’s request surprised me.
However, what really surprised me was our other investor agreed to shut the company down. He probably didn’t want to face the prospect of supporting the company on his own.
I had to think fast or we were going to shut down the company.
My heart rate went up, but I felt calm. I was going through in my head our options.
Then, with no delay between my brain and my mouth, I said, “What if we move everyone in the company to minimum wage for the next six weeks? That will give us the chance to see everything through with the potential new investors.”
I paused and I waited for our investors to answer me.
I didn’t think they would go for it. But I still felt calm.
Much to my surprise, the investors agreed with my idea. The company would survive.
The next day I told the team we would be going to minimum wage. I told the team it was our turn to sacrifice.
I then spent the next hour answering their questions. And their questions were great, constructive questions.
My hope was we wouldn’t lose too many people during the next six weeks. We didn’t lose anyone. And we ended up getting term sheets from three of the four potential investors.
In retrospect, I think I was prepared for the desperate times ahead.
There is no doubt that you are put into a desperate place when someone tells you they are going to shut your company down. You have to react.
But I was prepared for craziness. I just didn’t know what the craziness would be.
I spent a lot of time with Tina, our Controller, looking at various scenarios to extend our runway. And one of the things we looked at was going to minimum wage.
So I was prepared. And my preparation saved the day.
I remember my Dad telling me a story about how he learned to swim. My Dad and my uncle were in a boat off Lake Michigan, and my uncle threw my Dad overboard and told him to swim to the shore.
I certainly wouldn’t recommend that as a way to learn how to swim, but my Dad made it to shore.
I prefer preparation.
Preparation allows you to think on your feet when times get tough. Do you think I would have come up with the minimum wage idea out of thin air if I wasn’t prepared?
I don’t.
For more, read: 7 Survival Tips For Startup CEOs
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