Financial consultant John Gillespie compares companies in "survival mode" to critical-care patients: They are ailing, unstable and prone to wild, unpredictable ups and downs.
Survival mode is a state of being familiar to most startups that have weathered the recession and to entrepreneurs who kept their companies afloat by postponing spending, hiring and long-term goal-making to focus on staying alive another day.
Gillespie, founder and president of financial consulting firm Beyond the Bottom Line , says that while survival mode is a necessary evil during tough financial times, businesses that maintain a reactionary mindset for too long risk missing out on new revenue streams and losing market share. But shifting into growth mode too soon can jeopardize everything the company worked to save.
Below, Gillespie and Elizabeth Gasper, Beyond the Bottom Line's managing director of West Coast operations, offer tips on when, how and why entrepreneurs should position themselves for the future by shifting from survival mode to growth mode.
Know Where You Stand
Survival mode means cutting costs, laying off employees, tightening profit margins and saving cash, in stark contrast to growth mode, during which a company reinvests profits, expands operations and brainstorms growth strategies with long-term payoffs.
Gillespie says the first and most important step in determining whether or not it's time to shift out of survival mode is knowing where your company falls on the survival-growth continuum.
"You've got to first figure out whether the patient is stabilized," Gillespie says. "Self-reflection and reality checks are important before you proceed, and you want to make sure you can calm down and get your bearings so you can honestly assess where you stand."
He offers the following checklist to determine whether your company is stable enough to consider new growth initiatives:
- Is the company at cash-flow break-even?
- Can you tackle your growth initiatives with existing staff?
- Does your company have existing cash or credit lines that can be used for growth?
Focus on Human Resources
When considering whether your company can tackle new projects with its existing staff, it's important to consider not only your employees' capabilities, but their collective mindset, Gasper says. Shifting into growth mode means shedding reactionary thinking and adopting a proactive attitude, which employees may not be up for after a long slump.
"Depending on how long a company has been in that survival mode, you may have very good people who are very tired," Gasper says. "In turnarounds I've dealt with, it's been important to have some honest conversations with existing staff members to find out if they have the stomach to focus on new initiatives, or if they're tired and out interviewing someplace else."
Gasper says many CEOs often either fail to notice that kind of companywide exhaustion, or they "ignore it or see it in a negative light rather than just accepting it and dealing with it."
Simply conducting one-on-one meetings with employees can help determine whether they're ready to embrace the cultural changes that come with growth initiatives, Gasper says.
Know Why You're Surviving
The recession is reason enough for any startup to end up in survival mode. But Gillespie says it's important to determine whether the economic downturn is the sole source of trouble, and to address other possible issues, such as erratic management or uncontrolled growth, before turning to new projects.
Gillespie and Gasper both say entrepreneurs should engage their board members to help assess their company's strengths and weaknesses, as their educated opinions can provide important reality checks.
"One of the biggest problems I see with entrepreneurial CEOs or CEOs of emerging companies is that they don't know how to leverage and use their board members and other advisors," Gasper says. "Getting their input about whether this is a good time for the company to shift gears can be invaluable."
Gillespie says this can be especially helpful when it comes to honestly assessing a company's leadership.
"Management might be overly optimistic about its own ability to change the economic conditions of a company," he says. "Luckily, management has a team of people it can count on to serve as mentors and coaches."
Plan for Transition
Gillespie compares this phase of transition to "transferring the patient from surgery to a gurney," or to pausing at a traffic light when it's yellow, with the red light being survival mode and the green light being growth mode.
Preparations could include connecting with staff members to make sure they're planning to stay with your company, talking to key customers about their anticipated needs in the coming months, conducting market research, or lining up new lines of credit.
Whether it's expanding internationally or pitching to new customers, moving out of survival mode and into growth mode can be risky.
"You have to ask yourself if you're ready to ride that roller coaster of pursuing a new venture, and understand that there may be stumbles you hit in the road," Gillespie says.
According to Gillespie, entrepreneurs should devise backup plans to address possible risks and pursue strategies that allow their companies to remain nimble.
For example, Gillespie suggests hiring consultants rather than full-time employees to fulfill staff needs to facilitate quicker growth and to reduce risk. "When you want to grow quickly, you want to be able to pull people in from the marketplace without taking on a lot more fixed costs," he says.
While new ventures can be risky, Gasper says, so can staying in survival mode indefinitely. "If you're always focused on preserving the assets you have, and are afraid to commit to future plans, you're going to miss opportunities," Gasper says. "If you're in firefighting mode, and every day you're stepping back and saying, 'Phew, I'm glad we solved that crisis,' you're never going to grow."