What goes through your mind when the startup you work for runs out of money?
My eyes are looking over a spreadsheet of names and numbers representing our employees and their salaries. A big red number constantly fights for my attention:
$25,000.
That’s the amount we needed to reduce our monthly burn rate by. To put it in perspective, that’s 40% of our payroll expenses. At this point we’re out of options — there’s no more wiggle room anywhere else.
We’ve already cut everything else we can think of including parking, food, and benefits. We’re even getting rid of our physical office (a significant reduction of $2,500 a month), opting instead to work out of coffee shops where we can.
Payroll is the only variable we have left.
It’s tough. Just a year ago we were riding high on our success and opportunity. We had just made it through a tremendously difficult time that almost killed the company. Our very first product release had met with promising results from the market. Our future looked bright!
At some point we lost focus, chasing opportunities that didn’t amount to anything. We were too optimistic, expecting tremendous growth without looking at the actual results we were generating. We expanded our operations to support the chase, hiring new staff and software engineers. Our costs ballooned without the proportional revenue to back it up, and it was time to face the now obvious consequences.
$25,000.
That’s 5 junior employees, 3 senior employees, or 2 executives. Yes, executives too. Nobody was safe, not even myself. It occurred to me that it might, in fact be best for the company if we got rid of myself and saved the engineering team.
I had built a cohesive, effective team, and I had built a culture to ensure that my absence wouldn’t drastically impact the productivity of the team — the team could go on without me.
I included it in the list of options I was writing.
How come we made it so far only to fall now? It hardly seemed fair, but it made sense. We wanted to be a great company, but we didn’t have the discipline. Greatness is many little things done well, day after day, moment after moment. Consistent. Unwavering. At some point we started to ignore that, instead chasing that one big thing that would propel us to success.
There is no silver bullet, though.
When we turned around, all of our previous missteps became evident and it was clear that we were far off the road to success.
Failure creeps up on you.
Greatness is many little things done well, day after day, moment after moment.
$25,000.
We’re playing around with the numbers. Cut this person, save $7,500 a month but risk having customer requests fall through the cracks. Cut this person, save $2,200, but lose a promising salesman. Cut that person, we save $6,500, but wait — that person has a mortgage to pay! Sucks to be them.
These are just scenarios though — simulations of what the effects of our decisions were. Excel made it easy to mess with peoples’ futures. We had already gone through dozens of different variations, all with their pros and cons.
Excel made it easy to mess with peoples’ futures.
There’s only one thing consoling me, and that’s that I had prepared everyone for this moment before I even hired them.
I’m not a rose-colored glasses kind of guy. Like a doomsayer standing on a corner waving a sign announcing the imminent end of the world, I told everyone I interviewed that the company might shut down unexpectedly at any moment. The people who joined our team knew during their very first interview that this endeavor might crash and burn within 2–3 months. They joined, anyways, fully aware of the potential consequences.
“They knew and they still signed up for this” might not pay their mortgage, but it eases my conscience…at least a little bit.
I don’t know who’s going to still be here after the dust settles. All I know is that these people are not just numbers on a spreadsheet. They’re people with lives and families. They’re people I invited to join me. Some left stable jobs. Others took pay cuts to work with us. They all extended their trust. They’re my friends.
We’re going to ruin their day.
An update
I originally wrote this post in the middle of planning for a significant round of cost reductions at a previous company.
I chose to wait to publish it for multiple reasons — for starters I didn’t want people finding out there was going to be downsizing from a blog post.
Since the post was written, we did downsize our company. I advised the CEO and the decision was made to let go of a senior engineer, a junior sales associate, and our head of operations. They were fantastic teammates, but due to our own missteps, we couldn’t afford to keep them on.
I also advised the CEO to let go of…myself! I had done what I could for the company, building a solid engineering team and process. Engineering was no longer an issue anymore, and to keep this many resources devoted to development just wasn’t the right thing to do when the money could be used for sorely needed sales and marketing.
By letting me go as well, we were able to guarantee the company would continue to operate by decreasing our burn rate enough to survive until growth. The engineering team that remained would be enough to respond to user requests — they were talented and there were solid processes in place to ensure that things got done. With the proper focus of efforts, the company could bounce back from this stronger than ever.
I continued to stay involved as an advisor to the company for a short while, providing guidance on engineering and management direction to ensure a smooth transition.