Bail, Paddle or Swim: What failed companies do when the ship is sinking

Companies come and go.  Thanks to the Great Recession, I happen to know several that are on the way out.

All three were stunningly profitable… in 2008.  But now, all three are losing money.  All three have a business model that is probably past its prime. None is paying the owners any salary at all.

Despite these similarities, the owners of these companies have very different perspectives on their predicaments.  One is frantically bailing.  One is paddling as hard as he can.  And one is preparing for a long solo swim.

BAIL FASTER

If the ship is taking on water – or the company is losing money – most managers’ first reaction is to cut costs.  Throw the deadweight overboard.  Bail out the water with every available bucket.

In a large measure, these entrepreneurs are smart, forward thinking, and it’s likely that they will survive the recession.  But where will they be when it’s all over?  Probably in the same place.  If you put effort into bailing, you’re not pushing forward and you’re not making progress.  In the end, you are a smaller ship, just as far from shore, but with less manpower to move you closer to your goal.  Is the original goal so important that you put all your effort into cost-cutting and downsizing?

PADDLE HARDER

If cutting costs does not come natural, the temptation is to ignore the storm, gaze at the stars and paddle harder in a new direction.  When the market is shrinking, don’t give up just change course and work like hell to make progress.

The good news is you might feel the wind in your hair.  You’re moving – going somewhere.  (You might even be hip enough to call it a “pivot”.)

But a new direction takes you into uncharted territory.  You have no experience in the new markets you are entering, and no understanding of the perils ahead.  Are you really any better off?  It’s easy to get that sinking feeling all over again.

SWIM FOR IT

The third option is to abandon ship.  When irons turns to broach, even the best captain wonders whether he is doomed to go down with his ship.  An experienced entrepreneur hears the siren call of new adventures and might just decide to jump overboard and swim for shore.

But when a company commander calls it quits – closes the doors and sends the crew packing – who benefits?  Not the crew.  Not the (remaining) customers.  And not the captain who was counting on equity to fund his retirement yacht.

Still, the prospect of cutting losses can sound better than the forecast of continued stalls – or squalls.  And bailing out can be a lot easier than bailing water.  The swimmer I know seems prepared to go it alone – maybe even to sit out the storm and do very little until better weather goads him back to the entrepreneurial seas.

LESSONS LEARNED

I don’t pretend to have all the answers.  The recession continues to hamper all kinds of businesses.  And if it’s not the recession, then it’s changes in technology, in consumer spending or burdensome regulation.  Eventually, all businesses face the perfect storm.

So let’s just face it.  Businesses die.  If you know whether you would bail, paddle or swim, I want to hear about it.  We all do.  After all, knowing when to say when – and how to chart your own course through the roughest of seas – may be the truest mark of a worthy captain.

Dedicated to your (sea faring) profits,

David

PS: I’m vacationing at the shore today, so my thoughts have turned nautical.  Drop me a comment below and tell me how you are captaining your ship through the storm.