Smart Lemming Diary: Management challenges early stage companies face

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Are those informal hallway discussions or water cooler meetings really important? What happens when you have the wrong business model for your company? Why it’s mission critical make tough decisions sooner rather than later?

Below is my journal entry from when I was a VP of Sale Operations and Marketing, dealing with these business issues.

October 6, 2006

Two months have passed since my last journal entry. We did get my Channel Management position filled. When my second former colleague declined, I went back to my first candidate. I made her an offer that she couldn’t refuse. I also talk with my former boss. It was surreal, as if no time had passed. The strange part was feeling like we were peers. Overall, it was a great conversation. We only discussed recent events like getting acquired by MTV and moving to Manhattan, staying away from topics like my recruitment.

Cash flow problems

We’ve had cash flow issues. At the executive level, we always knew we had a burn rate, but this planned burn off is stressful. My CEO worked out a deal with our investor, who put us on notice to improve Sales. We’re in data analysis mode to fix sales.

We’ve given ourselves a deadline on getting acquired. We have to justify why we haven’t hit our Sales goals. It’s also affected our valuation. We’ve had cash flow management problems, resulting in the need to make payroll by getting more funding.

Flawed business model

During this stressful time, our investor pitched us to one of his VC friends. Before we know it, our CEO’s in front of a VC guy, who didn’t bite. It turns out; we don’t have a “big idea” after all. Our market’s consolidating fast. Our business model is flawed. The model isn’t what my CEO, Controller, and CTO thought it would be when they reinvented the company a few months before I started. With only eight months left, this issue is hard to correct due to our long sales cycle.

Exit strategy

One of our partners decided they wanted to try to discuss acquisition again, so we delivered pre-LOI materials. Now, we’re in a sit and wait mode. Fortunately, we did secure the right channel partners, with two of them want to acquire us. In fact, we’re waiting on a term sheet from one and the other one is in a quiet period, anxiously waiting to make a move on us. If we’re lucky, we could be acquired as soon as the end of the year.

Indecisiveness nice has its consequences

We hired a Sales person in late 2005 as a sales rep and by July 2006, they still hadn’t sold anything. We have a long sales cycle, so this failure to perform cost us significant revenue over a year and half time period. My CEO was unwilling to terminate the underperformer, waiting five months too long. At the same time, it took another two months to fill our Channel Management Sales position. Prior to these two staffing issues, there was another instance of keeping an employee too long, that had a huge impact on our cash position. These three things ultimately affected our cash flow/burn rate. This mess has complicated our budget, valuation, and exit strategy. Our runway is only eight months long, but the goal is to be acquired by then.

Telecommuting problems

I’m traveling back and forth between Manhattan and Seattle. One of the challenges I’m facing is that I’m missing the hallway meetings with my CEO or Executive team that happen at the last minute. This move is chipping away at my decision to remain with his company, even though I’ve moved to Manhattan.

Lessons Learned

I’ve learned that informal hallway discussions or water cooler meetings really important are critical to your overall performance. I’m missing key information that I used to have access to when I worked next door to my Controller and two doors down from my CEO. I still have weekly meetings or maybe a random call here or there during the week, but I’m no longer part of the impromptu meetings. My peers don’t intend to exclude me; it just turns out that way.

I’ve also learned that having the wrong business model for your company can slowly drain the life out of a startup. Sometimes, the business model can be corrected, but when you can’t because of long sales cycles, then it can have serious consequences.

In summary, here my lessons learned from the past three months:

  • Be decisive on issues that affect your cash, especially when you have limited funding.
  • Don’t be too nice, avoiding the inevitable conclusion because it could affect your cash flow
  • Be sure what your business model is time and time again and if you need to adjust it
  • Have more than enough funding, making sure if you have enough funding to pull off your exit strategy
  • Execute your direct distribution model with a higher priority than your channels
  • Always have look for the white spaces in everyday life

I still love my job. I’ve become close to our Controller, who’s a wonderful father figure and peer all rolled into one. My admiration for our CTO is never ending. My CEO’s confidence in me is inspiring. But I didn’t expect to feel like I’m leading a double life after moving to Manhattan.

The Smart Lemming Diary is a series that chronicles a journey of laid-off worker, who becomes a Vice President of Sales Operations & Marketing for a small entrepreneurial healthcare technology company. For previous entries in this series, click here. For the first diary entry, click here. For the highlighted Smart Lemming Diary entries, click here.