Planning for a Crisis
You will face a crisis in your business. When that happens, will you be prepared?
Every business faces a crisis, sometimes multiple times a year. Whether it’s a financing round falling apart, a key employee quitting or a big customer leaving every crisis tests your abilities as a leader. If not handled well, a crisis can kill your company.
No one is at their best in a crisis, since the emotions and stress run too high. Many people believe they are at their best in a crisis, but many people believe they could fight a bear and survive so I wouldn’t trust their judgment. If you want to handle a crisis well, you need to be prepared.
Preparing for a crisis is as simple as planning for what you will do if the crisis comes to pass. Often, that plan is all you need! It’s impossible to take actions to prepare for dozens of potential crises but you can have dozens of plans. These plans might take you as little as an hour to put together now, but save you weeks of lost time later when you are panicked and stressed.
While all of your crisis plans will be different, they all have these common components:
Short term (mitigation). What (if anything) will you do about the crisis immediately? What impact do you hope these measures will have?
Long term (remedy). How will you recover from this over the long term? How long will that recovery take? What lasting effects might there be on the company?
Messaging. What will you tell your team? How and when will you tell them? What expectations can you set for them about how the crisis is likely to unfold?
This may seem simple, and some crisis plans are just a few paragraphs you could write down today. However, others can be very complex and go into great detail. You do not want to spend too much of your time preparing for crises, so spending as little time as possible to create meaningful plans is the best strategy. The best companies divide crisis planning among the team, so that no one person is spending too much time but all of the potential crises are still covered.
Here are some common crises and the plans you might have for them:
Crisis 1. Your VP of Sales quits in the middle of a critical quarter at an enterprise software company.
Short term: We will promote our Senior Director of Sales to Interim VP of Sales. We’ll reach out to the board and revise our sales plan downward as the disruption will inevitably result in fewer sales.
Long term: We’ll hire an executive search firm and hire a new VP of Sales. During the 4-6 months of the search we’ll have the Interim VP of Sales continue to run the team. We expect to be back in normal operations after the new VP of Sales is hired and up to speed, which will be 6-8 months.
Messaging: Thank the outgoing VP for their work, and remind the company that together they will continue to grow the business. Announce the Interim VP of Sales and thank them for stepping up, and announce the new search as soon as possible. Speak with all members of the sales team to address concerns and identify any potential flight risks.
Crisis 2. Your biggest customer cancels their contract.
Short term: Immediately contact your executive sponsor at the customer and see if there is anything you can do to change their mind. If yes, consider doing that. If not, learn as much as possible about why they canceled so you can improve for the future. If this cancellation materially changes the financial outlook for the company, send an update to investors and board members.
Long term: Identify what you missed that made this a surprise, and update your customer success/sales processes to ensure you don’t miss it again. Stay in touch with the customer and push to win them back the following year.
Messaging: Announce to the team as soon as possible, since they will find out anyway. Provide learnings from why they canceled and what you’ll do differently to avoid that in the future. Thank the team that worked on the account, and remind everyone that there are plenty of new customers to pursue.
Crisis 3. Your fundraising process results in no term sheets, and your company is not profitable.
Short term: We’ll immediately stop all hiring and discretionary spending to reduce our burn rate. If we haven’t already, we’ll schedule a meeting with our investors as soon as possible to discuss bridge financing.
Long term: We will build a financial plan that has us getting to breakeven/profitability. If that is not possible, we need to begin looking for an acquisition.
Messaging: Be honest about the risks and situation, and describe your runway and options to the team. Don’t avoid the bad news, but highlight the opportunities and provide timelines on when you’ll know more about them.
These might seem simplistic, but your crisis plans don’t need to be sophisticated. Any CEO who has run more than one company has an entire collection of these simple plans for a wide variety of scenarios. Some executives have enough experience that they don’t even write them down anymore, since they know them so well. I recommend writing them down until you feel that confident.
For many of these plans, you might choose to take actions now to make them easier to execute later. For example, in the case of your VP of Sales quitting, you might design the sales organization to have a Director of Sales who is senior enough to step into that position if you need them. Once you have your plans in hand, you can decide what such actions you want to take and when.
There are some functions where crisis planning is part of normal operations. Engineering teams, for example, have disaster recovery plans in case the product systems go offline. These provide excellent role models for functions that might not be used for crisis planning. Having a board-level or team-wide review of your crisis plans at least every year is a good idea, and it helps your team learn from each other.
Personally, I always have my leadership teams provide a list of Risks & Mitigations for every board meeting (typically quarterly). It’s a lightweight form of crisis planning and makes it a regular habit for everyone, instead of a chore you avoid. It also makes it clear which of those Risks requires a larger crisis plan!
Crisis management is not easy, but having plans in hand that you can execute when they happen helps a lot. At the very least, these plans ensure you will not wait until the emotional shock of the crisis wears off to act since time is so valuable in a crisis. Planning ahead means you can act quickly, and in doing so handle the crisis.
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