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How to Survive A Crash Landing

Dennis Faust writes: "The vast majority of technology companies fail. That is market Darwinism at work. Through no fault of your own, chances are you currently work at one of the eventual losers. If you are prepared, this experience will be little more than an opportunity for an unpaid vacation. If you are caught flat footed, it can be a very traumatic experience. With a little forethought, effort, and strategy, you will be in control."

MENTAL PREPARATION

Pilots are trained to always look for the next possible landing strip in case of an emergency. If your company's engine quit today, where would you land? Try to always have an answer for that question. Here are a few suggestions to reduce the pain of unemployment:

Make sure you have marketable skills. Check the employment pages of companies you would like to work for and make sure you have the skills they want. Go to seminars. Take classes. Volunteer for projects which use new, popular, or cool technologies. Do some projects on the side. Make an effort. It's for your benefit.

Save some money. This can't be emphasized enough. This is a VERY risky business. You could be handed your last paycheck at the next meeting. Can you afford to live for a couple of months without income? If not, put away some money now. At the very least, contribute as much as you can to your 401k. You can get at that money in an emergency. DO IT!

Maintain contacts. Keep in touch with previous supervisors, coworkers, and recruiters. These people are good sources for references and possible job openings. The larger your circle of contacts, the safer you are. Go to lunch with someone who might hire you once in a while -- and buy! If you are in a large company, cultivate some relationships with people in other groups and divisions. Keep your resume fresh. Hopefully, if you have enough contacts, you won't need it.

PREFLIGHT INSPECTION

Pilots perform a preflight inspection of the aircraft in which they are about to take off. You should do the same with your company. Get out occasionally and talk to some business people. Ask tough questions. Nose around a bit. Look for the signs of trouble detailed below. Watch what happens to your competition. Sure, they may have an inferior product or service, but what if a number of them are going down? Is your company really that much better? In most industries, there are at most one or two winners. The rest will eventually die or be assimilated.

The number one reason companies fail is insufficient capitalization. This is MBA speak for going broke. Business is about making money, after all. Find out how much your company is spending each month versus how much it is bringing in. If this difference is negative, your company is 'burning' money. Next, find out how much your company has in the bank. You probably know how much was taken in the last round of funding, right? Divide the amount brought in from the last round of financing by the monthly 'burn' rate. How long will that money last?

DO NOT trust management's assessment of the situation. They are well compensated to evangelize the party line that all is well. It is in their best interest to keep you working feverishly until they decide to let you go. I've been on both sides of this equation. I've had a Venture Capitalist and a CEO look me square in the eye and tell me all is well and then hand me an I.O.U. for my final paycheck the very next day. I've also been instructed to be a cheerleader to keep the troops' morale up. Watch a few people that you respect and see what they are doing. If you want to be sneaky, make friends with the executive assistants and people in Human Resources. They often know what is going to happen soon after it has been decided. Sniff around and make up your own mind.

TELLTALE SIGNS OF IMPENDING CRASH

Taken individually, none of the items below should be cause for alarm. Many of them are natural and desirable activities of healthy companies. However, if several of them occur within a short period of time or after some negative event, start making plans for that safe landing!

  • Turmoil at the Top:
    • Is the executive team in an uproar?
    • Have there been a lot of closed door meetings and grim faces lately?
    • Have any executives left the company?
    • Are they calling unscheduled or emergency Board meetings?
    • Have they decided to change the business model?

    As a group, these people have more money and ego invested in the company than you. If they run in circles, scream, and shout, the little folk had better watch out!

  • Budget Belt Tightening:
    • Management starts to focus on tracking tiny expenditures like office supplies
    • Catered meals and massages become a thing of the past
    • Hardware and software purchases must be endlessly justified
    • Benefits are cut
    • Expense checks are paid late or not at all
    • Vendors and contractor's invoices aren't paid on time
  • Euphemisms become the rage:
    • Right Sizing
    • Realigning
    • Restructuring
    • Reorganizing
    • Hiring, budget, or purchasing freezes

    These are often a cover for early rounds of layoffs. Personnel are most technology company's single largest expense item. Any staff reduction can have a huge impact on the burn rate. It's ironic, but layoffs almost never start where they could do some good: at the top. ;-)

  • Optioning the future:
    • Closing overseas or other offices
    • Selling products below cost
    • Giving away services to increase product sales
    • Selling source code or other intellectual property
    • Selling buildings or other trophies of the high times
    • Selling acquired companies or entire divisions

    These are indicators that the need for cash in the short term is so great that it's worth risking the long term health of the organization.

SURVIVAL

You need to determine what level of risk you are willing to live with and what your goals are. From these you can devise a reasonable strategy. There are two ends to the strategy spectrum: hang on at all costs or bail out at the first sign of trouble. Neither is fool proof or correct for all situations and your best fit will probably be somewhere in between. The key is to have decided beforehand what your strategy is and to stick to it.

Let's go over the pros and and cons of each. If you bail out at the first sign of trouble, you forego the possibility of the company turning around. Often, incentives are offered for those who stay; these are likely to be more stock, cash, etc. Keep in mind that these debts and promises often do go unpaid! This option has the benefit of allowing you to choose how and when you move on. Many times, the first offer to employees of a severance package will be the best and the last one that actually gets paid.

Hanging on to the bitter end lets you collect all the cash and stock incentives for staying and lets you see your project to its conclusion. This alone can often be a significant personal reward. However, this option is risky. You could be surprised at any moment with the reward for your loyalty coming in the form of a lay off or termination notice. You can be put out on the street in a moment's notice. It's happened to me!

It's vital to think about what is important and acceptable to you and act accordingly. Decide how much uncertainty you can live with and set some milestones and decision points of your own. Set a limit on how far down you will go and stick to it. Some examples of milestones and decision points might be "90 days", "until the first round of layoffs", "until so and so whom I respect leaves", and "until they take away the massages". Whatever your personal limits are, set them and then stick to them.

CONCLUSION

Timing is everything. Unless a better opportunity comes along, there is no reason to bail out of your company at the first sign of trouble. If you have done the things above to make yourself desirable, you have some flexibility. Your company's investors have an exit strategy. What's yours?

You've probably thought a lot about what you'll do with the money if your company goes Public. Give some thought to what you'll do if it tanks. Put a couple of months' salary away for a rainy day. Then when an executive smiles and tells you "There's no problem with the funding!", you can smile back and say "That's wonderful!", secure in the knowledge that you know where your next safe landing place is located.


Dennis Faust is Vice President of Engineering at a prominent E-commerce company and was previously Director of Development at Digicash, Inc. (http://www.digicash.com/). He has been a Development Manager for more than fifteen years and has managed groups of thirty or more developers on several occasions. He is a technical advisor to JustGive (http://www.justgive.org/) and EverySchool (http://www.everyschool.org/). He humbly gives thanks to all the developers he has had the great good luck to work with over the years. He can be reached at: dennis@faustian.net.


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Recent comments

15 Aug 2000 17:55 Avatar exnihilo

Good article
As the guy who literaly turned off the lights at a company, I agree with the thoughts on hanging in there.

The thing to remember is that it is unlikely to be financialy rewarding.

Another place that I worked, I used the "as long as I'm being paid" rule, and started job-hunting the day a paycheck was late. As a major stockholder, that was a sad decision. But I was concerned that a quarter with lots of unpaid labor would establish a financial baseline that would be impossible to maintain while paying people. In other words, if we ever got back to paying ourselves, there would be an ugly dip in the profit graph. The rest of my team hung in there for seven years, and rumor has it they averaged less than minimum wage. Then the IRS crushed them like so many bugs, and the consequences included personal liability for company taxes.

Now I'm in a huge company where my colleagues seem to think there is security. I still practice parachute maintainance. This is a great company, but things can change in a matter of hours, no matter where you work.

12 Aug 2000 17:10 Avatar ragnarok

identifying sinking ships
Excellent article! Personally, I like to stay on as long as they keep giving me a paycheck -- the first time your paycheck is late, quit immediately. And as the author suggested, you should always have a few months of savings $$ for emergencies.

Another bad sign is if your employer shows up on www.fuckedcompany.com :-)

12 Aug 2000 08:25 Avatar frankcast

Failure is experience in wolfs clothing
Don't forget that if you find yourself having to excercise "Plan B", to learn what you can from why the current company is taking a dive.

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