Don’t Try this at Home
"Rumor has it that if you put a frog in a pan of cold water on the stove and turn on the heat, it will stay put while the water gradually heats to a boil. At this point, the frog becomes a tasty form of hot, green slime."


"Why doesn’t the frog jump out of the pan when it figures out that the water is getting progressively warmer? There are at least two reasons – denial and inertia. The frog initially goes into a state of denial convincing itself that the water is still cool. Then it goes into a state of inertia -- ‘well the water does seem to be getting a little warmer and I probably should take some action but I’m busy right now – I’ll deal with that problem later.’

Faced with a looming cash crisis, the frog’s distant cousin – the corporate executive -- often exhibits the same behavior. In a bizarre quirk of nature, human beings (and frogs) often go into a state of denial when faced with unpleasant news – they choose to hide from the truth. I can’t figure out why natural selection has allowed this characteristic to endure throughout the ages. Unfortunately, in business this state of denial, combined with inertia – a resistance to any form of change or fluctuation in status quo -- often leads management to delay taking evasive action until it’s too late.

An unfortunate fact of life is that technology startups burn through cash. It takes time and people to develop a product and bring it to market. Time and people cost money and a technology startup is in a seemingly endless race to raise new cash from investors before the existing cash burns out. You don’t raise funds overnight – the process usually has a gestation period of around..”

A cash crisis develops when the cash burns out more quickly than management’s ability to raise funds. You go through various zones as a distant cash crisis develops into a terminal cash crisis and you head down the slippery slope to shutdown. This chapter provides practical advice to help you navigate through the scramble zone, the survival zone and the shutdown zone.

Among other important issues, this chapter covers each of the following topics in some detail:

• How a cash crisis develops
• What to do on detecting a looming or distant cash crisis
• Reversing negative momentum and escaping a death spiral
• Raising funds
• Cutting costs
• Slashing costs
• Reinventing the company
• Warm and cold restarts
• Implementing an orderly shutdown
• Bankruptcy