So, when do you panic? As an investor in many startups, we
are always dealing with a major crisis in one of our companies.
The reality of startups is that it is actually part of the
normal process to have an occasional crisis. In fact, I use “crisis
measurement” as one way of monitoring startups.
Without over-generalizing, I think it is normal for a
startup to have one crisis about every six months. Within a couple of years, it
may go down to once yearly. More than one crisis every six months probably
means that the company is being too aggressive/ too reckless and less than one
crisis every six months probably means that the company is not taking enough
risks/ pushing the envelope hard enough.
The type of crisis I am referring to can range from market or customer issues all the way to existential crises where the company needs to completely question the path it is taking.
The success of a startup often depends on just how well the
team, CEO, investors, board and employees manage the crisis. The worst way to
manage any one of these crises is to ignore them or hope they go away. They
don’t go away. They just get worse. The sooner you deal with issues and face
them head on, the better your chance of recovery.
I keep reminding myself and our startups that one of the
biggest advantages startups have over “real companies” is their ability to make
changes easily and quickly. Big companies cannot change very fast or very
easily – they have to worry about existing customers and previous products.
Startups can redefine themselves quickly and easily. In fact, they need to keep
reminding themselves that they can make these changes easily.
The best startups keep testing their assumptions. They put
stakes in the ground. They take big bets. BUT, they make sure that they can a)
keep evaluating these bets and b) they create a corporate culture and
infrastructure that lets them change direction easily when they need to.
I never think our startups are failing when they have a
major crisis. I never think our startups are failing when they make some huge
zigs and zags. I do think our startups are failing when they can’t easily adapt
to changes in the marketplace or the realization that the facts have changed. I
think they have failed when they keep going down a road that they know is the
wrong one, but feel that they have an obligation to “finish what they have
There are lots of factors that cannot be controlled in the startup environment. Making change in the face of these factors can be controlled. Anyone founding a company, investing in a startup or working in a startup has to be comfortable with change. Otherwise, don’t dabble with startups.