Do you have break glass plan? It doesnt matter what stage your business is it, you definitely need to have one and you need to keep it up to date.
Firstly, what is a break glass plan? Think of your house flooding and you can only grab a few things. What do you take? Literally the most critical things only. Apply that to your business and this is your break glass plan.
Imagine your next funding doesn’t come through in time, what do you do? Do you turn off the lights and walk out or do you make radical changes to keep the company going while you secure new funding or make the decision about what to do next in a considered way and not rushing.
You learn an awful lot during a fundraising process. We have just completed our Series A and we were no exception. We had planned between 3–6 months for our raise but for a few reasons it took us closer to 9 months. The raise is now done and the cash is in the bank but during the last few weeks of the process, things at time were tense, and cash was fast running out. Indeed, at one point only a few weeks before the close and while we were waiting to be paid by our clients, our account was empty. Our ability to have covered our payroll and operating costs at the end of the month was at serious risk had we not completed when we did. Thankfully we did.
While its not unusual for a Founder to be in a position of being low on cash, best practice advises to make sure you always have 6 months cash in the bank.
We had significantly less than this and if the round had not closed we didn’t have time to find a new investor. We would needed to break the glass!
Although as Founders you always put on an amour coat of optimism, one morning both my co-founder and I decided that there was a genuine risk we were not going to raise in time. If we missed it then we would have to made some very dramatic cuts.
We spent a couple of days, with the help our finance manager, going through everything and made a plan. Our finance manager had already started the plan before we even asked her, she is very good. We actually made a few plans based on various scenarios. None were pretty and all were hard.
However, just the exercise of doing it was very valuable which I why I think everyone should do it.
- We found things we were paying for we didn’t need to, so we stopped.
- We identified some initiatives we could cut and we did.
- We discussed all aspects of the business and it helped us get razor focused and reminded us of our core mission. When you have cash you can drift a bit.
The hardest thing we had to do was discussing the team and what we would do person by person. No plan was pretty but the important thing was we had a plan, in fact a number.
However, in doing it, we drew strength. We realised we could flip it to a profitable business and we could keep our head above water. We knew that if we did this it would be hard but we could provide some stability while we found a new source of finance.
After doing it we found we both felt a sense of relief and amazingly we had a renewed sense of focus.
Luckily we didn’t have to break the glass but I am glad we had choices.
We will run the same exercise every 6 months. It will be hard to simulate the reality of having no money but it’s important to try.
While I throughly recommend you doing this at whatever stage you are at, I would also suggest that you never share it with anyone. It’s a bit like having to chose your favourite child or something, it’s a choice you never ever want to make.
Good luck
