Restructuring: Do You Need to Restart Your Startup?

By Karl Stark and Bill Stewart

You wouldn't start a business if you didn't think it could work.  Yes, entrepreneurs tend to have an outsized sense of the possible, no one would put in the time, money and effort required to start a business without a compelling sense that it could really become a success. Why, then, do so many startups fail?

One big reason is because entrepreneurs aren't known for listening and learning from their mistakes.  When everything seems to be falling down around you, there's a fine line between blindly sticking to your original plan and being open to pausing, analyzing what went wrong, and making course corrections with the benefit of your recent experience and new information.  Ending up on the correct side of this line can be the difference between failure and success.

Mistakes are inevitable, especially in a startup where so many factors must come together simultaneously.  It is almost as inevitable that an entrepreneur will become overextended during the startup phase.  Every entrepreneur has war stories of the chainsaw juggling that's inherent in the first few years of a company's existence.

No Room for Error

Our war story starts when we hit our stride and were maturing as an organization.  We were growing at a rapid clip, were 100 percent staffed with our strategy consulting business, and had just doubled our associate class.  We were fully extended financially and had more than doubled our team; we had no room for error.

Our business can be spikey and, as bad luck would have it, two of our biggest clients had a change in their business that reduced the need for our support.  We had to cut our cost structure fast and deep to get it in line with the new forecasted revenue base.

Continuing our growth plans could have easily resulted in disaster.  Folding the business may have been the easiest path, but when we gathered our leadership team to discuss options, we all agreed that we still believed in the core idea around which we first came together.  We had built a valuable team that we couldn't easily replace, but we needed a leaner business model that capitalized on our strategic assets.  Effectively we were starting over, but not with a blank whiteboard--we had the benefit of the knowledge of our recent experience, both the good and the bad.

In fact, the most difficult part of retracing our steps was checking our egos and the plethora of (mostly legitimate!) excuses at the door.  We almost had to ac tlike we were reviewing the actions of a client to get the kind of honest analysis that we needed to develop a recovery and go-forward plan.  We used everything that happened--good and bad--to find out which parts to knock down and rebuild, which parts to strengthen, and which parts to kill.

We are better off since restructuring our business.  We are laser-focused on one goal: being the most sought-after partner for anyone looking to build or grow a business.  We have a comfortable cash cushion, our margins have never been higher, our pipeline is robust, and we can see the light at the end of the tunnel--and we're sure it's not an oncoming train.

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