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What To Do When You Hit Rock Bottom

At its nadir, in 1997, Apple had DAYS of cash left in the bank. It was in danger of missing payroll and it had to go to its banks for astonishingly small sums of money. This happened to them.

We were in the same boat, but it was easier to fix and on a smaller scale.

Realize: if Apple survived, so can you.

Once I got better – late March – I resolved to work through the issues.

Realize You’re At Rock Bottom

You have to decide it’ll never get worse. That this is the worst place you’ll be. This – is hell.  You can’t get out without declaring that you will never be here again.

Passion? I rarely argue for it. I think it’s generally a distraction. But in this case, when you have slid, when you have to come back? There can be nothing more important than passion to guide your next steps. There can be nothing more important than the humanity, the spark that says “I AM.”

Define what it is that’s rock bottom.

For me:

  • I couldn’t pay vendors or designers on time.
  • I couldn’t be generous.
  • We were fragile.
  • The business needed me every day.

That was the bottom. That was where we failed, and that’s where I can never be again. To become impeccable.

Identify & Pay Legacy Issues Next

Since our issues were financial, we had to handle them as fast as possible.

Next we did was separate legacy costs (things we’d inherited) from current operations. This was to treat old debt like old debt, and not let it “run into” current operations. The idea was to use profits to close the gap. And to have the gap not run into things.

This meant we paid bills in a “LIFO” manner. The upside is that new vendors get paid, the downside is that relationships with other vendors are strained. And you have to stall for time, and equivocate. Neither are fun.

The next thing is to plan to cover the legacy issues. We didn’t dig the hole in a day, and we couldn’t dig out in a day. But we had to figure out some way to make it so the business was sustainable. On our end, our debt was 35% of annual revenue. Not terrible, but not ideal, and we didn’t have corresponding assets to offset it. So what we did was had a plan to cover this WITH PROFITS over 6 months. We are currently 4 months through the plan and will be out in mid November, 2016.

Core Principles

The last thing is to figure out core principles of your business. Exactly why do you exist? Revenue? Mission? Lifestyle? What are the boundaries?

You have to define them. We did this just recently, midway through our debt reduction plan when we were moving up Maslow’s hierarchy far enough to start solving second order problems.

My mandate was “more” and a mandate of “more, always” isn’t sustainable. And worse, it collapses in on itself when it succeeds. It’s uninspiring – to the nth degree – to just chase money. But to change the world? To chase story? That’s it, man.

Finally, you realize – exactly – what caused it and more specifically what will defend against it. The cashflow shocks of an independent business always stink, and you have to guard against it. For me, it was:

  1. Having a messy personal life.
  2. Not having redundancy in my sales role.
  3. Having a boundless appetite for overhead.
  4. Trying to grow too fast (i.e. hiring before the revenue was consistent and the last cycle was paid for).
  5. Not having standards to grow by. I.e. all vendors paid, $50,000 in the bank, whatever.

These are the things that I can’t do again, because the growth will come – if at all – in fits and starts, and the risk of doing-what-happened-last-time will remain.

Tomorrow I’ll speak frankly about the process that we’re using and how we live and die.

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Christopher Johnson

Christopher Johnson is writing this blog. He's a startup veteran, having built a company called Simplifilm. This blog is about things that he's starting to - but may not actually - think yet. It publishes irregularly.

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