A Very British Plan B: Go Bust?

Will your startup go up in smoke without a Plan B?

I’ve just finished reading “Angels, Dragons and Vultures” by Simon Acland.  Although the book is focussed on venture investments rather than the Angel investments that I am familiar with, I found it a useful and interesting read and much of the advice is wholly applicable to seed or angel stage companies – I would highly recommend it to anyone interested in investment in technology companies.

The author makes one assertion that sits less well with my experience of early stage companies, which is that there should always be a “Plan B”.  By this he means that a company should never depend for its continued existence on a things happening as planned, and should always plan for contingencies.  This might mean planning to scale back the size of the team if sales don’t come in as expected, or if investment is harder to raise than expected.  He rightly points out how easily expected cash inflows can slip, and that in the absence of a Plan B the management team can be trapped into taking investment on disastrous terms.

In many of the technology start-ups where I have had been closely involved, there has been no Plan B.  There have, on occasion, been points in the history of the company where without a sale coming in, or if an investment round fails, the company is doomed.

Reading Simon Acland’s confident words about the merits of a Plan B I couldn’t help but agree with him, and wonder where we were going wrong.  I’m not sure I have found the answers, but I do have some ideas.

The companies I have been involved in have all been British.  We are sometimes accused of being somewhat fatalist as a nation – easily resigning ourselves to queuing and poor service.  Perhaps we lack the combination of imagination and optimism needed for a Plan B?

Another possibility is that our companies these companies have been too poorly financed for a Plan B to make sense, that we are the gambler in the casino with a single chip for whom everything must go on a single roll of the dice.  Certainly I have heard a number of comments from US investors and entrepreneurs alike concerning the small and frequent investment rounds companies in the UK tend to receive compared with start-up clusters over there, although the various published statistics I have seen suggest that this view might be skewed to some extent by looking at US “superstar” start-ups.  If there is a lack of proper financing, could that also relate to a lack of optimism?

My personal experience could also be skewed by working with very early stage companies, which typically have only a handful of employees and angel stage investment.  Perhaps early stage companies the world over lack the resources (or “runway”) to have time for a Plan B?   They are still at a stage where the risk is very high, and failing to gain customer traction will be seen as failure of the business?

I have no idea how many times I have been told “There is always at least one competitor for you – the do nothing option is always there”.  Perhaps the same applies to Plan B – “There is always at least one Plan B – the Go Bust option is always there”.  Under some circumstances, going bust may be the best available alternative and perhaps that’s OK, as long as the risk is understood and the directors are aware of their legal and moral obligations to stakeholders?

I’m going to keep Simon Acland’s advice on always having a Plan B very firmly in mind, but I’m not sure I’m always going to succeed in having a better Plan B than Go Bust?  Is that an artefact of the environment I work in, or am I just making excuses?

Please do share your thoughts and experiences in the comments section below.