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Crisis Management in Start-Ups

Aug 17, 2007
Surviving a crisis, more often than not, provides a chance for a total turn-around and a new direction for your business. But managing a crisis is not an easy task as it entails a lot of things to be done on multiple fronts for sure-fire results, albeit in a very short period.

"Companies, whether big or small, are judged more by what they do wrong than what they do right," claims Cindy Railing, a PR consultant from California. Your business is going to suffer if the situation at hand is not properly handled. Crisis management means immediately blocking the holes in the dam which if left unattended, even though for a short time, would cause major damage.

Common Causes Of Crises In Start-Ups

Awareness of causes which could lead to unmanageable crises beforehand could help avoid the onset of one. But missing the signals will land you in troubles every time. The common causes for crises in start-ups are listed here.

1. Lack Of Planning And Failure To Follow One: Although small businesses are supported by the SBA and other agencies, many lack a proper contingency plan. Broadly speaking, many contingency plans do not make provisions for impending disaster. What is worse, anticipated risk profiles are not in place from the beginning.

2. Lack Of Financial Discipline: Most start-up small business owners use their business and personal bank accounts interchangeably. Procrastinating on the part of receivables and payables increases your interest burden, which pushes your business towards a crisis.

3. Unforeseen Problems: Sudden cancellation of order/s or decline in product demand for unforeseen reasons (also a failure to plan for this).

4. Obsolescence And Irrelevance: Your product loses relevance because of obsolescence of technology or due to the arrival of a replacement. This includes loss of relevance due to market erosion, as in the case of outsourcing to third world countries.

5. Acts Of God And Changes In Laws: Hurricanes, earthquakes, fires, floods and war can wreak havoc on your business, as can changes in laws which don't favor your current line of business.

Tiding over the Crisis

Let's take a couple of representative cases of crises to examine how the businesses can survive through them.

Crisis due to fire hazard:
1. Make sure there is no loss of life
2. Report the fire and any associated losses to your creditors, clients, insurance company and banks
3. Get losses estimated; if necessary, get help from professionals
4. Evaluate the possibility of early commencement of operations and if possible, begin operations even if on a small scale or in a makeshift/temporary office.
5. Try to reschedule credit repayment and delivery of goods or services by explaining your situation to your creditors and clients. It is very important to preserve your credit rating if at all possible.
6. Take the advice of your attorney. Explore any government grant possibilities.
7. Plan ahead and stick to the plan in every respect.

All Other Crises:

Finance side:
1. Negotiate with creditors, banks and clients professionally to reschedule repayment so that your business credit rating is not harmed
2. Try to refinance your loans, try second mortgaging or using a collateral loan. Go for a long repayment term if the loss was huge.
3. Try unsecured loans (they have high interest rates, of course) as the likelihood of collateral requirements is less as you would have attached them to the first loan.

Production side:
4. Ask your staff to stand by you during the time of crisis. Motivate and take them into confidence.
5. Analyze what went wrong. You don't want to face bankruptcy or risk your good credit. Be brave and don't waver if you have to make the difficult decision to reduce staff
6. Make short term and long term plans and abide by them
7. Try and regain your creditors' confidence and don't change suppliers at this stage.
About the Author
Tony Jacowski is a quality analyst for The MBA Journal. Aveta Solution's Six Sigma Online offers online six sigma training and certification classes for lean six sigma, black belts, green belts, and yellow belts.
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