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Sales & Marketing
Don Montanaro  |  March 18, 2014
5 Steps Every Start-up Should Take When Crisis Hits

Every September 15, I shudder a little and touch wood a lot. I’ll never shake a feeling of superstitious luck about that date, the day Lehman Brothers failed and the Great Recession began. It was also the day my business – an online brokerage named TradeKing – entered a crucible hotter than any we’d experienced before or since. We’d either emerge flinty and stronger than ever – or get consumed by flames. As one of my board members told me, “Hot fire makes strong steel.”

I learned a lot of invaluable lessons during fall 2008 and its aftermath. While nobody expects to face a once-in-a-generation crisis again, crises of lesser magnitude crop up frequently:  security breaches, website outages, product recalls. Any of these can flatten a startup in no time. TradeKing did emerge from this crisis stronger than ever. We’ve more than doubled our account base and annual revenue since 2008, and we’re growing faster than ever now. But I’ll never forget how difficult those days were.

Below are 5 steps we took during the 2008 financial crisis that proved wise. While our experiences are specific to us, these lessons are universal to any startup and crisis type.

1. Rein in spending with your vendors.

For a financial services business, market choppiness spikes operating costs. Transaction revenue spikes, too, as traders sell or close positions, but that burst is followed by a longer period of inactivity. During “fast markets,” trades can get jammed up at the exchange level, entailing costly “make-goods” for a firm with clients who will walk away from a game they deem unfair.

I explain these specifics to illustrate a broader moral:  Every crisis takes a particular shape. Your challenge is to recognize that shape quickly and trim costs before the crisis is full-blown. We aggressively documented the source of every “make-good” error– and worked with trading partners to share those costs whenever feasible or fair. Don’t hesitate to squeeze your vendors. They want you as a viable post-crisis client, so use that reality to your advantage. Ask for relief. Just as you need to occasionally dip into your pocket to retain a client doing business with you, your smartest vendors also probably have some spare fuel in their tanks for these scenarios.

2. Talk with your employees.

Crises impact employees in two ways. First, all eyes swivel to you as a leader for answers. Second, crises will generate tons of work. Two great reasons to get in front of your troops fast.

Your message is simple. Summarize the crisis, the biggest risk factors, and what everyone should focus on. Acknowledge their fears, but keep it constructive:  if we all do X, we’ll put ourselves in the best possible position. Your team is comprised of adults, so be honest with them and treat them as such. Crises are scary, but they can also inject adrenaline into your team. Harness that energy to do the (mountainous) work ahead.

This is also a great opportunity to observe which managers carry real influence in your firm, and which step up their game to keep everyone rowing in the agreed-upon direction.

3. Gear up for the media.

Give your troops a clear chain of command for media inquiries. If you employ client-facing staff, as we do, they should assume everyone they talk to could be a reporter (or influential blogger).

Circle up with your PR team early, even when information is scanty. You won’t do yourself any favors if they’re caught by surprise. As a leader, your reaction must be to run towards the fire first. This is no time to close the office door.

4. Keep your customers informed.

Forget playing ostrich in the social media era. You aren’t obligated to volunteer that a crisis is happening, but be prepared to acknowledge it publicly as soon as even one tweeter notices. Briefly explain how you’re addressing the problem, and indicate when you’ll provide more info. Then deliver updates as promised. That last part is crucial:  you can hemorrhage goodwill during a crisis, so keeping your promises regarding updates helps you rebuild public trust.

5. Circle the wagons with your board.

When you’re stamping out fires, you may forget to notify your board – or you may be tempted to let sleeping dogs lie.

We opt to stay pro-active. Our philosophy is “manage up:”  share brief updates early, and you’ll rise in your backers’ estimation. You might even glean some useful advice. If word reaches them from any source but you, you’ll waste time explaining the situation while under a cloud of suspicion about why you kept them in the dark. Your investors should know they don’t have to babysit you. That lets them focus on less mature management teams, freeing time for you to actually deal with the situation.

Finally, take stock of what you’ve learned after every crisis. You should gain additional perspective about partners, teammates, clients and investors. Even if you survived one crisis, you’ll want to tighten your response before the next – because another crisis will come, I guarantee it.

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