What Is The Four Step Process To Managing Any Crisis?

The board meeting began, and the bad investor started speaking. His partners suddenly had many misgivings about the company.

In an instant, the funding that his firm had promised was gone. We now were going to have to live off of bridge loans and find other sources of funding.

That meeting marked the beginning of a yearlong fight with the bad investor and his firm over the company’s future.

Your company will likely have some crisis that will push you to the brink.

 

And, how you handle the crisis will be critical in determining your future.

So let’s start with the sage advice the good investor gave to me:

 

“Whatever you do, don’t react.”

 

In other words, process the information and take your time. Now, I’m not saying you should take weeks to determine what to do, but you need take a little time to let your emotions settle.

Your world has just been rocked, after all. Everything that was good is now bad. And your initial fight or flight instincts might not lead you in the right direction. This bring us to the first step of crisis management:

Whatever you do, don’t react.

The board meeting ended. I didn’t react to the bad investor.   But inside I was really pissed, and I was scared.

What were we going to do?

The good investor stayed behind to talk to me. His firm was just as much at risk as I was. They had millions of dollars at stake.

“Let’s wipe him (the bad investor) out!” I said to the good investor.

“It’s too early for that,” he said. “We’re stronger trying to work with him.”

The good investor was right. He’d been through many situations like this before. And that brings up the second step for crisis management:

Have a council of elders to lean on.

 

The good investor, one of the other board members, and my advisor were my council of elders. Fortunately, I had built these relationships over several years, so I could trust the advice I was getting.

Each member of my council of elders played a key role in helping me navigate the crisis over the next year.

We quickly developed a strategy for what needed to be done to overcome the crisis. This leads to the third step of crisis management:

Quickly develop your plan, set your priorities, and execute.

 

It was clear what we needed to do. In our case, there were two key actions:

1. We needed to hire a chairman of the board. The bad investor was insistent we needed a chairman, so the quicker we hired someone, the better off we would be.
2. Raise money. We needed a new investor, and fast, with the bad investor’s lack of support.

Finding the chairman was quick. The bad investor suggested someone, but there was no way I was going to work with anyone the bad investor suggested. No way!

However, the good investor suggested someone we had considered previously for the board. I quickly set up a meeting, and we met later in the week. Within two weeks, he had met the other board members. Within three weeks he was on-board as our new chairman.

The chairman and I then set about finding a new outside investor. The chairman had a network, the good investor had a network, and I had a network. We started pitching potential investors.

The employees would quickly know something was going on. I was going to be out of the office a lot meeting with potential investors. There was no way to hide what was going on. This leads to the fourth step of effective crisis management:

 

Be as transparent as possible with your team.

 

This rule of crisis management may be the most important of all.

Your employees are smart. That’s why you hired them. Your employees are going to know quickly that something is up. So, you’re much better off just telling them:

• You build trust when you are open and honest with your employees, and…
• Your employees become part of the solution, and…
• The trust you’ve built with your employees can build tremendous loyalty

It’s scary. I know it is because you believe your employees are going to leave when they find out what’s going on. They likely will not leave from my experience.

We quickly (for a semiconductor company) found a new investor in three months. But, as I said earlier, our crisis lasted over one year because of the bad investor’s dirty tricks.

At one point, all the employees (myself included) had to go on minimum wage for six weeks to save the company. Do you know how many employees we lost?

Zero.

In fact, the employees applauded when I told them we were going on minimum wage. We had been honest and transparent with the team. And the team rewarded us with their loyalty.

We lost our health care at one point, and we missed payroll too. Do you know how many employees we lost?

Zero.

We had no money and we had no other options. We had a term sheet (the fourth we received) on the table. It was either accept this term sheet or shut down the company.

The bad investor still would not agree. He blocked the investment from going through.

We were out of time. It looked like we were going to have to shut the company down.

The only card we have left to play was a bank loan we had with Silicon Valley Bank. I got on the phone with SVB and told them they were going to lose their money for no good reason.

SVB said they would contact the bad investor. I was not hopeful.

We had an emergency board call scheduled for the next day. Amazingly, during the call, the bad investor called and backed down.

 

We could now close our funding.

 

There's more to this story. A lot more in fact. But, I'll never forget the damage this one person caused.

 

At some point, you will likely have a crisis that will push your company to the edge too.

 

Maybe you’ve already had one. Did you keep calm? Did you call on your council of elders? Did you quickly develop your plan and set your priorities? Were you transparent with your team?

I’d love to know more. Just drop me a note here.

 

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