Startup Worst Case Scenario: Planning The Total Loss Strategy

Apparently, just one of four new startups survives. Moreover, if they succeed in the beginning, 75% will cease to exist within the period of five years. These are the numbers compiled in an article by Claire Bluth (tech.co, November 2015). This means that one of the plans, besides the budgeting and marketing, should be the exit plan. The chances that something will go wrong are not to be overlooked. Therefore, you need to prepare for the worst, plan a total loss strategy and then expect the best.

Preventing Your Losses

This sounds more easily said than done. Nobody creates a company with the idea of failure; everyone hopes to be a success. However, in order to have a successful company, you have to plan very carefully. The majority of people make a mistake of borrowing too much of their capital before starting the business, or not calculating the first couple of months when the company will do business without actually earning something. Before anything else, you need to calculate your capital and be very specific about your liabilities. Don’t neglect your investments because liabilities will happen and if you are not careful, they will dig into your capital. That is a quick route to disaster.

Know When to Give Up

A lot of people left their jobs in hope to have a successful startup. For many of them, this is the point in their lives that everything is supposed to get better. That is why a lot of people continue to operate their company, even though it is obvious that it is a failure. Emotions and feelings of failure aside, numbers will show you the real picture. Your monthly revenue should be greater than your monthly cost. In the worst case scenario, it should be the same. If your costs are greater than your revenue, it is time to shut down.

Short vs. Long Shutdown

There are two major ways to shut down your business. The short shutdown means that you just need to stop the production for the time being. This happens when the costs exceed the revenue, but you still do not have to close your business for good. It is usable for the times when the market is shaky or some other temporary issues occur. To be able to predict that, you need to get properly informed by using different relevant sources like ProOpinion Blog and other media outlets. A long-term shutdown is when you really give it time and make all the needed adjustments, but it still doesn’t work. This usually leads to exiting the business.

Your Options

You can always just shut down what you are doing and sell the equipment, minimizing the loss. On the other hand, you can try and sell the entire business in the found state. There are always the options of merging with other businesses and operating with them for a while. If it is lucrative, you can then gradually get out of the partnership or sell your part. However, if the part of your capital is borrowed, you should never let your business spend that money without recovering it. Selling out at the point when you can return your loans is a responsible thing to do.

Nobody likes to think about the worst case scenario, but in the case of startups, preparing for such fate is simply doing good business. Having an exit strategy is just as important as the business plan, especially when you are aware of the number of startups that fail. However, you should go for it and try your business skills, just make sure that you have your safety net ready.

Dan Radak is a web hosting security professional with ten years of experience. He is a coauthor on several websites and regular contributor to BizzMark Blog. Currently, he is working with a number of companies in the field of online security, closely collaborating with a couple of e-commerce companies.