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      Home LEADERSHIP Business Leadership Risk Management

      Avoid Failure: Act on the Worst Case Scenario (While You Still Can)

      Craig Reiss by Craig Reiss
      Oct 26, 2009
      in Risk Management
      0
      Avoid Failure: Act on the Worst Case Scenario (While You Still Can)
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      In early 2007 we were working a huge convention with nothing more than a big idea and a lot of nerve. We were hot, and we were flaunting it. We had extraordinary talent and our product was immediately perceived as best in class. Through a flashy presence and sheer force of will, of which I had great reserves, we convinced the market we were the next big thing. Our customers were so engaged with our ingenuity that 20-minute sales calls turned into two-hour brainstorms. At our launch party, our customers came in Lamborghinis and our investors arrived in Bentleys.

      Then the first economic tremors hit in early 2008 whenfuel topped $4 a gallon and Wall Street wrote off its first round of toxic billions from the bursting of the mortgage bubble. But we seemed to be alright.

      The mood in our market remained well short of panic, although our customers delayed spending and started focusing on 2009. We fell behind projections, which was understandable for a start-up in its first year of operating. The picture right around the corner looked pretty damn rosy. By fall we were able to forecast substantial sales for 2009. We were set to have a profitable, scalable business if we could bridge operating capital – which we did – until the revenue started flowing.

      We attracted a new group of individual investors from around the world, each with a stratospheric net worth. We went through intensive due diligence and structured a deal. Then the global financial markets quaked and collapsed, again and again, day after day, and the investors vanished in an instant. One minute we were a sure thing, the next, we were under-funded, over-committed and unable to hold on.

      In the months that followed, I hunkered down into economic survival mode and shook off the emotional devastation of failure a layer at atime. I edited the summation of my entrepreneurial adventure, deleting any sense of victimisation. Now my story reads like this: I ran a business. Now it’s gone. I failed as a manager. I bet the house. Now it’s gone. I failed as an investor. The End

      Anyone can fail – once. Fail twice and you transcend into a failure. What I’ve learned is that in the face of failure the only thing that matters is to live to fight another day. The tough-love survival tactics are best extracted from the lessons of failure.

      Here are mine…

      1. In order to survive, we must dedicate the totality of ourselves to it. This is very difficult to do. Concentrating on survival, instead of focusing on success, runs counter to the motivations and self-confidence that led us to be entrepreneurs in the first place. Yet it takes selfless dedication to strip away accommodations we’ve made to the realities we face.

      2. Make a stone-cold assessment of the situation, no matter how unbearable the conclusion. This is essential to survival. There can be no tolerance for denial, no sustenance in victimisation, no excuses required.

      3.We must be able to strip the truth as we have rendered it from the reality that confronts us. To let reality in, we must get out of its way. And survival is very much about what is real.

      4. The means to survive are always before us. We must make ourselves able to see them by embracing the inverse of what we are doing.

      5. We must be willing to change completely, even if the business that survives no longer resembles the business we started. We need to abandon what we hope or believe could happen – especially anything that would absolve us from the need to consider mere survival. Nothing else matters.

      6. We are managers of our companies. And managers manage risk. In the end, we are judged on nothing else. Good times can obscure the cost of delusion. Bad times, like these, expose it for the lethal vulnerability it is. Had I not failed at this, I would have a business of some kind today. It’s that basic.

      Here’s an easy test to determine if you should be taking survival strategy very seriously: Have you made any of these statements in thepast 30 days? “If we can just get around this corner, then things will pickup.” “If this one deal comes through, then others will follow and we’ll be all right.”

      If we can hang on until we feel the impact of the economic stimulus bill, then things will work out.” “If we just pour some more money into get us through the tough times, then we’ll end up being successful.”

      “If you’re overly confident or helplessly hopeful, you can substitute the word “when” for the word “if” in any of those or similar statements, but you’re still in jeopardy of being unable to respond to what you have to do to survive.

      I used every one of those “if” propositions, and in my analysis every “then” had some miraculously positive outcome. Nothing contributed to my failure more than my unrelenting dedication to my original concept of success. It almost worked, but it didn’t.

      7. Act on the Worst Case While You Still Could Be Wrong. If everything goes completely wrong, can you survive? If everything gets even worse than you can imagine, can you survive? Have you calculated what seemingly desperate manoeuvres you would have to take to survive, and precisely when those changes should kick in? Are your survival weapons locked and loaded? Have you eliminated anything that could muffle the blare of the alarms?

      8.The key to survival is staying ahead of the need for it. No matter what state your business is in right now, its cost structure has to be amended. Renegotiate everything. Leases and loans have to be brought to a sustainable level, or the business must be restructured without physical location or need of capital. Obligations must be sub-let or abandoned. Cut sales commissions. Eliminate every job you can, and then eliminate almost every job you think you can’t live without.

      We all tend to put off making drastic changes because we consider consequences. Cut commissions or salaries and we could lose our best people. Give up our location and we would look bad and no one will want to do business with us. Or we might think that we’ll never be able to get another location as good once things turn around. Or so we tell ourselves – and we’re wrong. Talent is a cost, not a dependency, and it must be measured against return.
      A location grander than its return is vanity.

      9. The biggest mistake we make is to become paralysed by our sunk costs. We’ve all put alot into our businesses. We can’t just walk away from those investments, certainly not without fundamentally weakening the business as we know it and, more emotionally, because it would make us look like we’ve been damn fools. But that’s exactly what we need to do. Money spent is money gone. We need to dedicate ourselves to the money that’s left. We have to measure every move against its contribution to survival.

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      Craig Reiss

      Craig Reiss

      Craig Reiss is the former editor-in-chief of Adweek, Brandweek and Mediaweek. He also was chief creative officer for Primedia, where he oversaw positioning for 150 media brands. Reiss is now principal of CIA: Customers Into Advocates, a Connecticut-based customer research firm.

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