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Sunday, September 27, 2009

Re-Startup Formula For Success

A re-startup is a company that evolves from an unsuccessful startup. Many startup companies never achieve their initial objective to grow and become successful. The conventional wisdom is that these companies are failures. This assumption is not entirely true. Many startups fail and have the potential to succeed in a new form. In many ways a "re-startup" can have advantages over pure startups making them more likely to succeed then the original startup.

There is plenty of documentation and literature on how to start, fund and manage a startup. However, there is very little advice on how best to manage a re-startup. There are similar challenges to running a startup and a re-startup. However, there are distinct challenges associated with a re-startup that require special management techniques to position them properly and put them on the road to success.

Re-Startup Building Blocks Self Assessment

There is a yin and yang to a re-startup. Certain aspects of a startup's history can work for or against a re-startup. Re-startups are best characterized as a natural evolution of a startup sharing common components that need to change over time. An assessment of these components should be conducted during the formation of the re-startup and a determination of how and if these components should be changed to properly position the new entity for a restart.

Staffing - If the staff has not been mistreated they most likely will continue to be associated with the company and the management team. This is a great asset especially if the company is highly dependent on scares human resources. In particular, technology based companies spend a lot of time and money acquiring technical resources. If a re-startup can retain these resources it helps to control cost and allows the re-startup to get to market quicker.

On the negative side the staff may be disgruntled and morale low. This is something that is difficult to change and may require a churn of most of the human resources in the company and rehiring to build the new company.

The staff should be fully evaluated to determine who is going to stay and who is going to go. Special attention should be given to key players that will form the nucleus of the new entity. These are people with special knowledge or skills that will be needed to get the re-startup off the ground. These are usually people that lead by example. The difficult part of the restaffing effort is removing people that have the talent and skills you need but do not have an enthusiastic attitude about the team or the new company. These people will have to be let go even if they represent a critical component to the business. The new business can not tolerate a naysayer spreading ill will in the company.

Morale - This is a big one impacting everyone in the company. If a startup has failed it leaves a residue of bad feelings, self assessment and doubt about the management team and their ability to lead the company to success. However, if the startup had recognized some success the management team and the employees may have confidence that the team can be successful with a new business plan.

The real challenge is to get the energy level back into the company. This may require the removal of some or all of the management team and an infusion of new blood and new ideas into the company. Bringing new personnel and ideas into a company can be reinvigorating especially if the old startup was not cutting it. The key is to establish a core group of people that believe in the new entity and the new personnel.

Learning From Mistakes - The initial startup failed for some reason. It could have been the business plan, the technology platform, a change in the market, the loss of funding. etc. The key is for the new decision makers is to acknowledge the deficiencies in the old model and learn from them. This alone will have a great impact on the morale of the company. This process should also make for a new and stronger company more likely to succeed.

Funding Sources - The original entrepreneurs spent time and energy making contacts in the financial world to raise working capital or to establish business relationships. These contacts will come in handy when the time comes to raise funds for the re-startup. The downside is that bridges most likely have been burned and the original funding sources are no longer an option. Also, a failed startup usually does not bode well for the managers involved in the original fund raising effort.

This is a difficult circumstance to navigate. However, savvy investors may look at a team that has failed with a startup as a learning experience for the team. Ironically, people learn more from failures then successes and really wise investor will know this. If the management team can convince an investor that they truly have learned from the prior startup and have a convincing argument for the re-startup they may very well get funded by the original investors. New investors will also be interested if the entity has an established platform, customer base and or product. Emphasis the positive aspects of the original startup's achievements and how the new team has learned from the past and is repositioning the company for success.

The Bottom-line - Many newly minted entrepreneurs and startup companies have a hard time managing to the bottom-line. They are usually run on enthusiasm and the perceived need for rapid development and time to market. This can be a formula for poor financial management that leads to overspending or a lack of appreciation for cash flow management. In many cases the original startup failed because of this problem and not because the business was not viable.

If this is the case the re-startup needs to put controls in place that obviate this problem and demonstrate to potential investors and customers that the business can be viable if the bottomline is managed properly.

Time Is Your Friend - Just because a business failed does not mean the same business will not succeed at a different time. Many new companies are ahead of the adoption curve yet spend as if they are at the cusp. A good management team will do a self evaluation of the failure. They might find that the time is now right for the model and should proceed with that hypothesis. The original team and model may require little change to relaunch the business and become successful.

Your Customers Are Your Allies - Even if a business has failed there will be customers out there that believed in the company, product or service. These same customers could become customers of the new business. Use these contacts to get endorsements for investors, to seed the new business and to potential be sources of capital as first customers or actual investors.

In conclusion, re-startups are common and in many cases will be successful because of lessons learned from the original startup. They present unique challenges that do need to be addressed. The best way to make them successful is to conduct an honest business and self evaluation to determine what worked and what did not. Launch with a new and improved leveraging the past. you might be surprised at how successful they can be.

1 comment:

HenryWong94301 said...

I have exited 2 re-starts in the last 12 months, and they are very profitable deals. Preferred E-1 Round may not sound very good, but you should be laughing all the way to the Bank if you have an exit nowadays.

Best Regards,
Henry H. Wong
Garage Technology Ventures LLC