\n<\/p>\n
\n\t\tOpinions expressed by Entrepreneur contributors are their own.\t<\/p>\n
I have been working with a business that is basically \u201cstuck\u201d The business is doing OK, about break-even.\u00a0But it is not growing and doesn\u2019t have a current path to correct itself. That said, it has a great business opportunity in front of it, but investors do not want to fund the business, largely because the historical unit economics are not as profitable as the future unit economics projected, and that has investors feeling that it is a leap of faith farther than they are willing to jump. <\/p>\n
They are looking at opening a new location, which will materially propel the business to new heights, maximizing revenues, profits and unit economics while proving it can successfully open a new market. The business needs $1 million to comfortably open this location but has only $500,000 to work with today. But sometimes a business has no choice but to take a big risk\u00a0 to get it \u201cunstuck.\u201d<\/p>\n
Doing nothing is clearly the safest path in this scenario, as it will not put the company in a materially negative cash position, in terms of sources and uses of capital. Why take the risk of signing up for a project that you know will be 50% underfunded out of the gate, on the hope you will find the extra needed capital in the next few months to fill that gap; a financing that may never happen.\u00a0 At least today, the business is breaking even and has enough cash in the bank to meet its needs. Don\u2019t do it!<\/p>\n
If the business does nothing, it will never get itself \u201cunstuck.\u201d\u00a0At the end of the day, who really wants to be running a break-even business? Executives are not being fully paid, which is demoralizing them, and investors are not seeing any growth story or cash distributions, so they are not happy either. The company is simply on the \u201chamster wheel,\u201d running as fast as they can but making no material progress.\u00a0 That is not sustainable. Let\u2019s do it!<\/p>\n
By taking this risk, it will accomplish a lot of things for this company. It will put the business back into growth mode, which current investors will like. It will prove out the future unit economics and successfully open a new market, which future investors will like. It will materially increase the company\u2019s profitability, enabling management to receive their full salaries. And it finally gets the business \u201cunstuck,\u201d taking it to the next level of growth. Let\u2019s do it!<\/p>\n
Risks wouldn\u2019t be risks if they didn\u2019t present downside disadvantages.\u00a0If the company doesn\u2019t secure the financing needed to cover the shortfall in the next few months, it could go out of business with no cash in the bank. And by adding this new location, the business is also taking on a long-term lease liability that will persist for years to come. And there is no guarantee that this new location will perform the way you hope, so if anything falls short of plan, it will further exacerbate this liquidity crunch. Don\u2019t do it!<\/p>\n
You can see why this situation is causing management to lose sleep. They are damned if they do, and they are damned if they don\u2019t. Nine times out of ten, I would always go down the conservative path, and not unnecessarily put the business at risk with no cash cushion to work with. <\/p>\n
But in this case, the business is already in jeopardy; it is not fun or economically rewarding for anyone involved, which is another way of saying it is \u201cdead\u201d already. Sometimes you need to take the leap of faith that everything will work out in the end. It may be painfully uncomfortable for the next year, holding your breath, wondering how you are going to make ends meet. But if you can endure the next year of ramping up the new location, the business should be in a much better position by then. That\u2019s a position that you would never have achieved had you not taken the risk. And, in the worst-case scenario of\u00a0not raising funding\u00a0and the company is forced out of business, maybe that is the outcome you were heading towards anyway in your current \u201cstuck\u201d form.\u00a0 <\/p>\n
\u201cGo big, or go home\u201d, in this case, as the upside far outweighs the downside, which is not materially different than where the business was today.<\/p>\n
As you study your own businesses, figure out if you are \u201cstuck\u201d or not. Are your revenues flat? Are your profits break-even or less? Are you attractive to investors in your current form? Is your staff fully compensated and happy? Are your current investors seeing a clear path to a return on their investment? Depending on your answers, you will be a good candidate to take an \u201cuncomfortable\u201d leap to get your business \u201cunstuck\u201d.<\/p>\n<\/p><\/div>\n
I have been working with a business that is basically \u201cstuck\u201d The business is doing OK, about break-even.\u00a0But it is not growing and doesn\u2019t have a current path to correct itself. That said, it has a great business opportunity in front of it, but investors do not want to fund the business, largely because the historical unit economics are not as profitable as the future unit economics projected, and that has investors feeling that it is a leap of faith farther than they are willing to jump. <\/p>\n
They are looking at opening a new location, which will materially propel the business to new heights, maximizing revenues, profits and unit economics while proving it can successfully open a new market. The business needs $1 million to comfortably open this location but has only $500,000 to work with today. But sometimes a business has no choice but to take a big risk\u00a0 to get it \u201cunstuck.\u201d<\/p>\n
Doing nothing is clearly the safest path in this scenario, as it will not put the company in a materially negative cash position, in terms of sources and uses of capital. Why take the risk of signing up for a project that you know will be 50% underfunded out of the gate, on the hope you will find the extra needed capital in the next few months to fill that gap; a financing that may never happen.\u00a0 At least today, the business is breaking even and has enough cash in the bank to meet its needs. Don\u2019t do it!<\/p>\n<\/p><\/div>\n