The R.I.P.E. Method: A Comprehensive Restructuring Guide for Startups : Under30CEO The R.I.P.E. Method: A Comprehensive Restructuring Guide for Startups : Under30CEO
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The R.I.P.E. Method: A Comprehensive Restructuring Guide for Startups

| November 18, 2012 | 1 Comment

Studies have shown that at least one third of small businesses fail within their first three years of operation, and only a tiny fraction of those who last longer will go on to become a formidable presence in their industry. Most failures are caused by premature scaling – taking on too many clients/contracts initially, creating excessive overhead by hiring too many employees, or committing to overwhelming debt repayments. After these mistakes are made it can seem as though the fruits of your labor are beginning to rot, and the bountiful harvest that you had planned starts to look more like a fleeting illusion.

Fortunately, you can still go back to the drawing board and use a holistic restructuring approach known as the R.I.P.E method to facilitate the recovery and optimal growth of every branch in your company tree:

  • Responsibility – Dealing With Debt First

When repayments are consuming a significant portion of your monthly profits you can’t afford to adequately reinvest to promote expansion. Thus, the first step in rejuvenating any company should be assessing and addressing burdensome debts in order to free up cash flow and avoid future credit damage. Consider the following three debt restructuring options:

  • Independent Negotiation

Before resorting to costly or risky techniques try contacting the creditor directly to propose a revised debt management plan. Build a spreadsheet that clearly illustrates your company’s monthly profits and expenditure. This document can be used to convince the creditor that the new agreement will be sustainable. If you’re not proficient with spreadsheets, here’s a useful head start.

  • Company Voluntary Arrangement ( CVA)

If you’re not confident in your ability to pitch a revised payment structure to a creditor, or have already failed at several attempts, you may want to consider a company voluntary arrangement instead. In this procedure an insolvency practitioner is contracted to draft and propose a formal arrangement on behalf of your company. CVAs offer a much higher approval rate than independent negotiations.

  • Asset Financing and  Secured Loans

If your business has poor credit and there’s no prospect of being able to escape debt without additional funding, you may need to use asset financing methods to obtain a secured loan. In summary, you would use some of the company’s assets as collateral to secure a line of credit, which could then be used to repay existing debts or invest in operations that would make the business more lucrative. If your company has accounts receivable, pending short-term investments, real estate, or equipment/inventory, any of these asset classes can be used as a security. While asset financing offers a high rate of loan approval for struggling startups, it is important to note that failure to adhere to repayment terms could result in the seizure of assets used to secure the loan.

If your company still has decent credit you may want to consider Peer-to-Peer lending as well.

  • Innovation – Investing in Technology

Now that you’ve gotten your debts in order and aren’t continuously strapped for cash you can begin a technological renovation that will equip you with the tools needed to increase efficiency, enhance analysis, and promote better management practices. Start with:

  • Digital Accounting

If you don’t already use accounting software then it is not surprising that your startup is failing – congratulations on avoiding extinction. When you’re ready to join the rest of modern small businesses, start by choosing a business accounting software. Oh, and don’t forget to become proficient at using it, otherwise it’ll wind up consuming disk space on your hard drive (that’s new age techie talk for “collecting dust”).

  • Productivity and Time Management

There are so many time-tracking applications out there you can waste a lot of time just trying to choose one. To help you narrow down your search, here are the most useful ones based on general consensus: VueMinder, SlimTimer, RescueTime, Dovico, and TimeWriter.

These programs can really bring your productivity to the next level through interactive interfaces that allow you to manage scheduling, set alarms/notifications, and generate insightful activity reports. You can even use some of them to monitor employee output.

  • Telecommunications

Clients want to deal with companies that are easy to contact and communicate with. If you’re forwarding calls to your cell phone and asking prospects to “leave a message,” you’re probably losing business. Portray professionalism by installing an automated telecom system and contracting a voice-over company to record your prompts. You can also use advanced call monitoring apps to measure and compare the progress of multiple advertising campaigns, which brings us to our next point…

  • Proactivity – Advertising Aggressively

Okay so you’ve fixed your debt problem and have tweaked your in-house operations, now you just have to wait for hordes of customers to come crawling, right? Wrong. In today’s competitive environment you need to get out there and get your feet dirty. The following three aggressive advertising methods should get you started:

  • Partnerships

A wise man once said: “Go to where the leads are; don’t try to make them come to you.” The best way to put your products/services in front of a targeted audience is to partner with other companies in your industry. Find out who has a customer base that will be interested in what you’re promoting and then offer the business owner a commission for every referral. One thing every successful corporation has in common is that they have all leveraged mutually beneficial partnerships.

  • PPC/SEO

Another wise man with a bit more patience and a larger budget once said: “Get the leads to come to you and you’ll ALWAYS be where they are.” I know this seems like Confucius-talk, but nothing could be truer.  Pay-per-click advertising done right takes a lot of research and capital, but the conversion rates and analysis it can provide are priceless. Likewise, search engine optimization is also a must-do for any startup. This guide is lengthy enough so we’re not going to go into SEO tactics because we’re not trying to write a book, but plenty of books have already been written on the subject, and you should probably read them. Or just spend a long day browsing through the SEOmoz blog.

  • Social Networking

Everyone and their mother is on Facebook, Twitter, or some other social network. If your business is not, then you don’t care about making everyone and their mother your customer… simple equation. Friend/follow all of your customers; listen to their concerns and appease them with genuinely helpful information. Incentivize by offering people in your network exclusive discounts; a good way to do this is with a Facebook reveal tab.

  • Efficiency – Downsizing Appropriately

If you followed the first three steps you’re only one E from having the fruits of your labor go from rotten to ripe! It also means you’re at the ominous “R.I.P” stage, which is exactly what you can say to some of your employees – “go home and rest in peace… figuratively of course.” If the employee is part of the ‘Over 60 Non-CEO’ demographic you could be a bit nicer and change the acronym to “Retire in Prosperity,” with a kind hand-on-the-shoulder gesture for good measure. Maybe you’re one of those employers that hates to hurt people’s feelings, and that’s why you have a bunch of lazy, under-skilled loiterers in your office. Perhaps you need a few lessons on firing employees?

Obviously, the satirical attempt at humor above describes an inappropriate way of downsizing, so what’s the right way to do it? No one needs to tell you to be polite, but you may find the following tips useful:

  • Terminate Based on Performance

If a person generates results they’re of value to your company, if not then they’re a waste of payroll, it doesn’t matter whether they’re a “nice guy.” Use one of the time-tracking utilities mentioned in the ‘Innovation’ section to judge their efficiency and if they’re not performing up to par show them the door.

  • Look for Ways to Replace and Consolidate Positions

Case in point: the same person that greets people in the lobby can also answer the phone and send faxes. Until you’re no longer a “startup” you don’t need a doorman, a fax machine operator, and a phone attendant – leave it all to the receptionist for now.

  • Do More Work Yourself

Startup CEOs like to put themselves up on the big boss pedestal a little too quickly, and as a result they wind up hiring people to do things they could easily handle in their spare time. Don’t try to fully outsource everything just yet, and don’t be afraid of a little hard work.

The final tip I’ll leave you with is… research! If this guide is the last thing you read on restructuring you’ll be off to a great start, but it is by no means the end-all solution. Dig deeper into each of the topics mentioned here and you’ll be on your way to recovery, guaranteed.

Benjamin Ryder is a corporate finance professional, industrious entrepreneur, and under-30 CEO who is a strong proponent of the “what you put into it is what you get out of it” mentality. He’s currently collaborating with several high-profile companies, including Telecoms World, one of the UK’s leading providers of telephony solutions.

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Category: Startup Advice