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We recently had the opportunity to connect with Eric Ashman, former President and Chief Operating Officer of Group Nine Media, one of the world’s largest digital-first media companies, the former CFO of the Huffington Post, and most recently President of DTC apparel brand M.M.LaFleur.
Eric Ashman recently launched a management consulting firm, focused on helping venture-backed founders navigate challenging times.
The following are excerpts from that conversation with Eric Ashman. The commentary has been edited for content and clarity.
“Once you’ve created a product that people want to buy, and you’ve begun to sell to them, many startups make the grave error of rushing to accelerate growth and raise capital. But if you grow too quickly, you’ll find yourself spending more time hiring than executing. You may have a bevy of products, sales channels, marketing channels, and technology efforts, but all of a sudden it’s hard to tell which ones are worthwhile.
You’re spending more than ever, but the return on your investments may be dwindling. While this is common amongst early-stage venture-backed startups, it is imperative that you weed out the unproductive efforts and refocus on your product-market fit before you run out of cash and time.
Prepare Yourself For Difficult Change
As a founder, one of the most difficult challenges you will face is restructuring. You are no longer hiring, growing, and saying “yes” to projects; instead, you are laying off, canceling projects, and slowing down your pace.
Rather than wallow in the turn that your startup has taken, this is the time to be strong for your team and lead them back to a path that can result in success.
This is also the time to create high, medium, and low forecasts, and base all decisions on your low forecast. Determine exactly how long you have until you run out of cash. That is an important reality check that you need to be aware of.
Focus on what you can still accomplish, rather than what will be lost. If you stand up and fight for your company, you can still achieve what you set out to do; if you do nothing, you will inevitably lose it all.
What NOT To Do
Don’t cut your staff little by little. When you make your layoffs, be aggressive. Cut more than you’d like on the first round, as additional rounds in the near future will be deadly for staff morale. Your best people must be able to work with the confidence that they will not be on the chopping block week-to-week.
Don’t cut costs equally across the board. This creates panic, and teams that are already stretched thin now find themselves with a smaller budget but the same plan to execute. Be selective about where to cut costs based on the performance of the department.
What TO Do
It’s time to determine which of your initiatives have the most potential and focus on those. Do less, but do it better.
Here’s where you’re going to have to cut:
Products: Identify which products have the lowest sales, lowest margins, and highest return and cancellation rates, and get ready to cut them.
Marketing: Figure out which marketing channels produce the fewest results, and cut spending.
Sales: Take a look at every sales channel and decide which are worth pursuing.
Technology: Minimize technology efforts to only those that support short-term goals. No more pet projects.
Three Traps to Watch Out For
Once you’ve come to terms with cutting costs, you may find yourself falling into any of these three dangerous traps:
Sunk Cost Fallacy: When you think about all the time and money that you’ve already put into an initiative, you will be tempted to keep putting time and money in, even though it is not successful. Don’t fall for it; the only thing that matters is how you invest future time and money.
20-60-20 Rule: 20% of your initiatives are failures, and 20% are obvious successes that everyone can agree on. But it’s the 60% in the middle that will spell disaster for your startup. These are the initiatives that have strong support but no ROI to back them up. You will have to make hard decisions about cutting this 60%.
Analysis Paralysis: Don’t fall into the trap of waiting for more data in order to make a decision on the 60% of mediocre initiatives. This data will take much too long to accumulate if it can be acquired at all. This is the time to lead your team based on the data that is currently available: no more, no less. Don’t let your senior team stall by requesting data that doesn’t exist.
Move Quickly
When you’re restructuring, timing is everything. Your team will figure out what is happening very quickly, and it’s up to you to work fast and efficiently so that you stay in control of what is happening.
As you move to gather data, form a plan with your senior team, and create a timeline for restructuring, employees will recognize all unusual activity. Any disagreements on the restructuring will be disruptive to workflow and need to be kept under wraps.
Be the Leader Your Team Needs
Restructuring does not mean your startup has failed; it means that you are creating an opportunity to succeed. Depending on the effectiveness of your leadership, your startup can end up stronger and more systematic than it started out.
Keep your team motivated and learn from your mistakes. Don’t shy away from tough decisions. Identify which things you do best, and prioritize those initiatives. Stay focused on fulfilling your vision.”
We want to thank Eric Ashman for sharing his actionable insights and advice with our readers. For more information, visit his Website and subscribe to The Pivot to Profitability Newsletter.
