Hi guys,
This week, I want to talk about a topic that everyone is aware of, but is very rarely discussed in public - struggling startups.
There’s an often quoted statistic in customer service that if you have a positive experience with a company you’ll tell one person, however if you have a negative experience you’ll share that with 10 people. I reckon the inverse is true and multiplied in startups - we tend to hear 100s of stories about successful capital raises or a good ARR (Annual Recurring Revenue) growth story, but rarely hear about the struggles that almost every founder inevitably faces.
The problem? Founders start to think some of the issues they’re facing are unique, there’s something wrong with their business, or even them personally.
The reality? Building a high-growth company is bloody hard – and a really important message is to know that you’re not alone.
In the past month alone I’ve seen:
A scale-up who was running profitably with good growth lose its two major clients within the space of a week for reasons outside their control. They have now lost 40% of their ARR and are back to burning cash.
A Founder had a term sheet pulled from a VC firm, without any real explanation. They now have only a couple of months runway left and need to find a new lead investor before time runs out.
An Enterprise SaaS business that has 2-3 major clients who are refusing to pay their invoices, for no reason other than they’re big and can. This has left the company working through significant cash flow issues, despite revenue growing strongly and an overdue accounts receivable balance bigger than a lot of Pre-Seed capital raises.
Meanwhile, we’re also currently working with 5 or 6 Founders whose runway has fallen below six months with each working around the clock to find ways to extend this.
There have been exactly three times across my own Founder journey where I have stared down payroll due in less than a week without the funds to pay it if capital or customer invoices didn’t hit the business bank account. We were able to get through it and come out the other side, but those are some of the most stressful times. I truly believe it’s hard to relate unless you’ve been in those shoes yourself.
So this begs the question - how do you avoid these stressful situations? Obviously having your finger on the pulse and being across the risks is essential, but some issues are unavoidable. And in that event, how you communicate about what’s happening is everything.
There are basically three things I see good Founders do in this situation:
✅ Over communicate: Founders often find themselves trying to solve every problem themselves and can be hesitant to let others know the true extent of issues. This is the worst thing you can do. Bring people into the fold, be it your investors, the board, your execs and even your family. People can’t help if they don’t know what’s going on, and you’d be surprised some of the solutions people can assist with which you may never have thought is possible.
As an aside, if you don’t feel like you can pick up the phone to your investors and share with them bad news, they are not the right investor for you.
✅ Make tough calls, early: Good Founders aren’t afraid to make the tough decisions and execute on it with speed. Often getting into these situations requires cutting costs, which more than likely will include employees. The difference between a good and great founder is they make them fast. Delaying the inevitable just reduces runway and compounds problems.
✅ Remain focused on growth: The temptation when working through cash problems is to cut costs and improve runway, or even get the business to “default alive” - at least breakeven month on month. While this is ideal, it becomes a much bigger problem later on if there’s no clear pathway to continue to grow. Alive is one thing, but there needs to be a long-term plan to get the business back on the trajectory needed to be a high-growth company. The only thing worse than a startup failing? A startup failing slowly.
If you’ve been through tough times – I encourage you to share your own stories and experiences with other founders. It helps more than you might know.
Cheers,
Luke Rix & the KC Ventures team
P.S. If you’re a Founder looking to level up your finances, feel free to drop me a DM on LinkedIn or reach out to me directly at [email protected].
