Startup Turnaround Strategy: Getting Your “Profitable” Piece of the Pie

Entrepreneurs often times dream big at the beginning of their venture. Those dreams often include working hard, logging 80 hours a week, and “doing the right thing” which will result in their business having a respectable IPO and becoming a fairy-tale success story, getting them on the dinner table with the likes of Page, Brin (Google) and Zuckerberg (Facebook). Sadly, for most startups, that remains a pipedream. Not to burst your bubble, but according to Forbes, almost 90% of startups fail, with 50% of startups failing within five years, and that’s just in the US.

That being said, studies have also revealed that new businesses that are able to go past the two-year mark are more likely to survive, but that only makes up for 10% of all new businesses. If you’re just starting up, those aren’t good numbers. But, business like life, is a numbers game, which means you have to be smart about how you play the numbers.

Turnaround Strategy
A turnaround strategy is a revival mechanism which is used by startups and businesses to overcome the problem of industrial and business sickness. This strategy helps convert a company’s losses into profit. In other words, a turnaround strategy is the restructuring process that converts a loss-making business into a profitable one, hence returning it to operational normality and financial solvency.
An organization’s profitability and effectiveness can be affected by a variety of factors, which in certain circumstances can cause failure. These include:

• Poor managing methods
• Inability to put together a team that has the required skills
• Inability to control costs effectively
• Transition in new leadership
• Inability to adapt a company’s product according to customer’s expectations
• Harsh market conditions
• Loss of funding
• Fraud

Indicators of Decline in Performance
While a decline in the performance of a business can take several years, startups usually find themselves facing extraordinary external and internal events which pop up suddenly and result in the downfall of a newly established business. Normally, if a business is in its initial stages of failure, it will show some tell tale signs of financial duress. Some of the red flags to look out for are as follows:

• A constant loss of revenue which lasts for more than a few months
• A sudden and significant shortfall of funds, even with borrowing close to the maximum
• Suppliers pushing for faster payments

More often than not, these symptoms are the result of underlying strategic and operational trouble within the startup. In which case, if these signs or symptoms are not quickly recognized, understood, and reversed via a turnaround strategy, a startup may find itself entering a vicious cycle of decline, which will ultimately lead to its failure or liquidation.

Applying a Turnaround Strategy Effectively
While turnaround strategies are applicable to businesses that are running a loss, their implementation is easier said than done. The first question that startups have to ask themselves is, “how do we trigger a turnaround effectively?” The following lines are going to answer the important question on leveraging “what you have” for “what you need,” whether you are a “white walking” startup or a “tired old” company. Here we are going to talk about the ways in which you can turn around your company and get back on the right track before your company grows irrelevant.

Step 1: Analyze
This is the stage where all the areas which are leading to financial stress are identified. This can only be done by carrying out a thorough analysis of the company’s performance and identifying the areas of failure in order to come up with a frame of plans for the revival process. The whole objective of this approach is to arrest all further chances of decline in the performance and in profits of a business, while still continuing to do business and avoid the chances of liquidation. Hiring a turnaround consultant is a must in this period since most of the start-up CEOs are more like business developers with a narrow expertise in their own business while a multi-function and multi-expertise consultant can bring in the value of a “fresh eye”.

Step 2: Strategize
Once the areas which need improvement within your business have been identified, it is time to begin a strategic planning process. The first part of this process is to identify all of the strengths and weaknesses of your startup, along with the opportunities and the threats to our startup. During this stage it is crucial not to look only towards your startup internally, as in, its strengths and weaknesses, but externally as well, as in, the opportunities and threats facing your startup. This is very important when you are in the strategic planning process.
Using the SWOT method startups that are (or aren’t) in peril are able to identify their long-term vision, mission, and their objectives. Knowing where your startup is headed makes it easier to come up with a strategic plan.

Step 3: Take Action
Now that you have analyzed the situation and determined the problems within your startup, it is time to put your turnaround strategy to the test. You will start by developing a clear and concise action plan, which could also possibly include a change in management by hiring an external turnaround specialist. This will basically be a list of tasks or actions that will need to be completed within a specific time frame, which will ultimately lead towards the success of your startup turnaround strategy.
These tasks and actions will be done on a daily, weekly and monthly basis, and with the turnaround strategy in place, each one of these tasks will be contributing to the overall results of your mission. The steps taken in this stage will not just be on the implementation of your turnaround strategy, but will also include the support and coaching of your employees. Not covering this critical area will lead to the failure of your turnaround strategy, regardless of how solid the other parts of your strategic planning are. This is where startup owners will need to align the overall vision of their company with the skills and expertise of their employees. This can be achieved through taking care of the three C’s;

• Consultation
• Coaching
• Communication

Making sure that your turnaround strategy covers these three areas on a regular basis will get you one step closer to achieving your goal.

Step 4: Evaluate
With the planning and implementation in place, it’s now time to carry out an evaluation that will ensure that your turnaround strategy is on the right track, and that your startup is headed towards your ultimate goal. Regular reviews do not only ensure continual improvement, but also helps identify any corrective actions that may be needed. Evaluation should be done on a monthly (or even bi-weekly) basis during the first phase (stop the bleeding) of a start-up turnaround.

Ending Note
For startups, in which the stress is already occurring, effectively applying the processes mentioned above will result in the eventual turnaround of your startup. Make no mistake, a turnaround strategy is going to involve making challenging and controversial decisions, which could mean a startup opts for a new CEO or an external turnaround specialist. In fact, around 90% of startups have to change their CEO during first few years of their business. Whether you choose to replace your old CEO or make do with the one you’ve got, the best thing you can do is to start to improve and develop your startup today so that it can brave the elements and stay afloat well into the future.

First published on LinkedIn on 26 May 2016. Read the original