At first sight, a start-up and a turnaround environment appear to be at the opposite ends of the development cycle spectrum. But after looking a little closer, you’ll find that’s actually not the case. In fact, start-ups and turnarounds share many common attributes, including:
- Management Issues
- Limited Cash Flow
- Urgency to Achieve a Goal
- Problems With Process & Organization
- Struggling Sales
Let’s take a closer look at each of these:
1. Management Issues
Both turnarounds and start-ups require a unique breed of executive; one that won’t necessarily be a long-term player at the company. However, many times, experienced managers come in from large corporations – and yet rarely survive for a variety of reasons:
• They don’t have the resources they are accustomed to having.
• Their experience is with well- established business processes, whereas all processes must be built from the ground up in a start-up, or re-tooled in a turnaround.
• They are forced to delve into a level of detail they never had to deal with before.
• They must act with urgency with limited access to financial resources.
In start-ups, many times founders also serve as CEOs. While they are excellent business developers and evangelizers (i.e. they have vision and product knowledge), they often don’t perform well in company management due to lack of experience, background, and skill set.
Regardless of whether an entity is a start-up or in a turnaround situation, finding an independent leader with the financial acumen to mitigate cash flow exposure while seeking financing; the technical background to fully understand the product / markets; the knowledge of manufacturing / product development in a cost effective manner; and the ability to execute is extremely rare. Perhaps that’s why 90% of companies in turnarounds have to change the CEO and management team either before or during the restructuring phase. Likewise, approximately 90% of start-ups change CEOs at least once in the first years of existence.
So what does an ideal CEO look like? It’s a similar profile for both start-ups and turnarounds:
• Generalist – Exposed to complex and multiple environments
• SME experience – 100-1000 peers
• Sense of urgency – Ability to make decisions quickly
• Leadership – Ability to drive the team
• Analytical – Ability to discriminate and make priority adjustments
• Curious, creative – Does not remain blocked by hurdles
• Operational – Hands on
• Entrepreneur, autonomous – Has a “get it done” rather than “have it done” attitude
When it comes to management at either a start-up or in a turnaround situation, avoid hiring those with sector expertise or who are specialists. Specialists can be found internally. The key to success is to have a CEO with general multi- function and multi-sector experience. A non-specialist CEO will have a fresh eye and therefore be able to make a positive impact.
2. Limited Cash Flow
Start-up and turnaround companies are both in negative cash flow situations. Therefore, both types of entities need to maximize the efficiency of each dollar spent and minimize the cash burn in terms of expenditures and investments. Internal and external processes must be optimized and business development efforts boosted.
3. Urgency to Achieve a Goal
Besides cash, time is also limited. Both start-ups and turnarounds have a limited time frame in which to maximize business and organizational efficiency, and make the transition from a negative cash flow situation to a positive one.
However, the time frame for a start-up is slightly longer – two to three years – to survive beyond the critical state. For a turnaround, the time frame is typically one to two years. Other ways they differ? In a start-up environment, the executive team should be focusing first on product feasibility and industrialization, then business development; whereas in a turnaround situation, the first phase should involve reorganization and the second turning a negative cash flow into a positive one.
4. Problems With Process & Organization
Generally speaking, a turnaround and start-up are at totally different points on the life cycle of a business bell curve. But surprisingly, many of them share the same issues with process and organization, including losing focus on commercialization, which is the driving revenue of a company.
To combat this problem, a start-up has to focus on building up and implementing product development first and then on other business processes second. A turnaround, however, can simultaneously reorganize all of its business processes, as well as organizational and industrial flows. Regardless, both have urgent needs to review and implement new processes, drive a culture of continuous change management, and concentrate on recruitment in order to build up a high-performing management team (both at the top and in the middle).
5. Struggling Sales
Both start-ups and turnarounds struggle in the sales arena. For start-ups, the picture is a little more challenging. After all, developing sales from scratch is far more difficult than developing sales in an existing market. The sales problem in turnarounds is somewhat different. These entities need to stop selling products with negative or insufficient margins in order to shore up the cash bleed. This short-term shrinkage decreases sales and therefore must be very quickly followed up by business development efforts into existing and new (international) markets. In both cases, there needs to be competitive product positioning, a focused marketing effort, and an efficient sales organization in place to enable successful business development.