As a startup founder, you’re constantly fundraising, deciding which bills to pay – and if you should even pay yourself. You spend countless hours building a startup only to chase the dream with little result – how do you stop the cycle of never having enough cash? Can you startup turnaround? Or should you wind-down?
Here are some questions to ask yourself when you’re questioning if you can turnaround or wind-down.
Download your Wind-Down playbook here.
1. How much runway is in the bank?
Can you sustain operations beyond the next six months? If your financial projections show a runway extending past half a year, we might have the leverage to implement recovery strategies. With adequate time, a Chief Restructuring Officer (CRO) can enact critical changes, secure additional funding, or pivot the business model. Conversely, if you’re watching the end of the runway approach with no clear solution in sight, it may be time to consider a dignified wind-down.
2. How Does Your Debt Stack Up Against Revenue?
Are you treading water or sinking under debt? A favorable debt-to-revenue ratio suggests that with the right financial adjustments, there’s a tangible opportunity for turnaround. A CRO can capitalize on this to restructure debt, optimize operations, and boost revenue generation. On the other hand, if debts are dwarfing earnings, the focus may need to shift from salvaging the business to settling debts as beneficially as possible.
3. Does your Startup Have Any Contract Manufacturing Relationships?
Do you have the room to renegotiate manufacturing costs? Contract manufacturers can offer a lifeline if they’re willing to renegotiate terms, and can even outright buy your product from you. This flexibility can be crucial in reducing costs and preserving business cash flow, thereby enabling a CRO to stabilize your startup’s financial health. If such partnerships aren’t in place or can’t be adjusted, the ability to pivot financially is significantly constrained, often leading to a wind-down scenario.
4. Is Your Team Behind You in This Challenging Time?
Is your team’s morale high, and are they committed to the company’s vision? The collective strength and commitment of your staff can be a deciding factor in whether a startup can be turned around. A united team can support a CRO in implementing rigorous changes and weathering the storm. If, however, your team is disenchanted or disengaged, rallying them for a turnaround may be infeasible, and winding down might be the pragmatic choice.
5. Does Your Startup have Product Market Fit?
Not sure if you have product market fit? As a founder, your startup turnaround may hinge on if you can convince investors or a potential buyer that customer’s can’t live without your product. To determine if you have PMF, we recommend the Superhuman Product Market Fit Engine. You’ll also have to recalculate your TAM data to determine what your market penetration is, and how many of your Ideal Customer Profile won’t be able to live without your product.
6. What Does the Path to Saving Your Startup Look Like?
If the conditions are right for a save, are you prepared to make tough decisions and significant changes? A CRO hired to save a startup will take a methodical approach to renegotiate debt, streamline operations, and possibly pivot your business strategy. They will act swiftly to preserve cash and seek new opportunities for growth, all while keeping a close eye on the horizon. Startup founders may have to take a hard look at themselves – and how the startup ended there in the first place. Moving forward, saving the startup means finding a path to profitability and having a realistic financial outlook on growth.
7. When is a Wind-Down the Right Decision?
Conversely, is it clear that the most responsible path is to cease operations? If the prospects of turning the business around are slim, a CRO’s role will be to manage an orderly wind-down. This involves negotiating debt down, liquidating assets to cover obligations, and potentially finding a buyer through M&A to preserve some part of the business’s value.
No matter the path ahead, each startup’s journey is unique. With Ravix Group, you have a partner ready to navigate through these tough decisions. Our Chief Restructuring Officers are equipped with the expertise and experience to guide your startup toward the best possible outcome, be it a turnaround or a wind-down.
Take advantage of a free turnaround consultation today with one of our experts:
