Don’t Take your Foot off the Gas Pedal

This is a cautionary tale from my very first startup, SunnyBrook Technologies.Keep your Foot on the Gas Pedal

The company was about 2 years old when we happily found ourselves in serious acquisition discussions with a European company.  We were at a very advanced stage of the deal, with all of the key deal terms worked out, draft agreements going back and forth, and, most importantly, we had agreement on the numbers – in particular, the big number with the dollar sign in front of it.  Here we were, a twelve person startup of which I was a starving student co-founder, discussing an 8 digit acquisition: Life-changing stuff. Excel spreadsheets calculating how much and for whom appeared on many a desk. Happy times indeed.

The last thing our champion (a senior executive at the company) asked us to do was fly to Europe and give a demo to their Board.  We had the impression that the decision was already made, the agreement was ready to go, and the purpose was just to meet people and show off our technology.  We flew across the pond, settled into a small meeting room in the big hotel that this company was using for their annual executive meeting, and waited… and waited… and waited.

About 30 minutes after the meeting was scheduled to begin we started to get worried. But we still had the ‘good kind’ of worry: ‘Maybe they are running late,’ or ‘Maybe we got the wrong room.’ A little while later, we saw lots of people in suits frantically running through the corridors. Something was clearly going on, so we started talking to some of the frantic walkers outside and gradually got a picture of the situation. That picture wasn’t pretty.

During the opening of the executive meeting the board had announced that it was firing the CEO of the company.  They were also firing a significant portion of the executive management, incidentally including our key champion, and a significant company restructuring was announced.  Not only did we lose our champion, we also lost our acquisition deal (nobody ever really formally confirmed this – there just isn’t a lot of mind share left for some small startup when your mega-billion dollar company just decided to re-privatize itself).

Just like that, everything was over.  That flight home was one of the harder ones in my life.  Not only had I just theoretically ‘lost’ quite a lot of money, I also had to explain to our employees, colleagues, the university, and everybody else who had been involved in the project that the money they were hoping to get, wasn’t going to come.

The second problem, where the real moral of the story lies, is that we also had to figure out how we were going to keep going. We had to a certain extent bet the house on this deal. Fortunately, we hadn’t in the financial sense, but we had in the emotional sense.  When a major deal of this kind comes up, you really tend to focus on it. As a result, it is easy to unintentionally start slowing down all sorts of other activities, especially those activities that don’t really have strategic fit with the potential acquirer.  Don’t slow down other activities unless the money is in the bank.

We were angel financed, had limited money in the bank, and while we had some rough prospects to raise another round of financing, there was really nothing actively in the works and we were a few months away from drop dead.  If that sounds like negligence to you, keep in mind that in all my startups, with the exception of TandemLaunch, I never had more than a handful of months in the bank at any given point in time. So it was not that bad in terms of my future startups, but we had certainly not put ourselves in a good position.

As hard as it is, try to overcome your emotional instinct to focus on the acquisition and assume it will go through.  Realise that until the ink is dry and the money is wired, that these deals can fail. They do fail, and much more frequently than we often think. Keep your foot on the gas pedal: continue core operations, and continue to pursue other avenues of financing, acquisition, and revenue generation until you are absolutely certain that everything has landed.

4 thoughts on “Don’t Take your Foot off the Gas Pedal

  1. Hi Helge,
    Great post and even a better story. I can’t imagine anything more heart-wrenching than that flight home. I love the advice to keep running your business as if you’re never going to sell it, until the “ink is dry”.

    I’m very interested in learning more about how you handled the emotional turmoil after the fact?
    Particularly how you handled discussions with employees, colleagues, the university, and everybody else who had been involved in the project? It was a blindside scenario, that I can’t imagine is common but certainly a huge blow to any momentum you may have built up.

  2. Thanks for the comment Rob. I don’t have a magic formula for managing bad news. I tend to be very open, possible too open, with everybody on the team. Apart from allowing people to make better decision, this also increases their participation in the venture. They share the ups as well as the downs – both being very natural in any venture or at least mine (just look at all the valleys my last “cash-curve”: http://techentrepreneurship.com/2011/01/04/a-tale-of-near-failure/ ). That in turn makes everybody a bit more resilient.

    The other thing to keep in mind is that the motivation factors for employees are often very different than for founders. Employees tend to place more emphasis on work environment, career progression and so forth compared to their (already smaller) cash upside. Managing those aspects takes effort but is also much more under your control than a big commercial deal. Do this well and you get teams that stay motivated throughout the valleys.

  3. Pingback: Perspective on Failure « The Tech Entrepreneurship Blog

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s