Do Startups need a Plan B?

“Men's mind, once stretched by a new idea, never regains its original dimension.” Oliver W.Holmes

This is a saying that I repeat often as it reflects the dilemma of every entrepreneur. Once, he gets a taste of entrepreneurship he cannot go back to being an employee easily. This brings us to an important issue - what if things do not pan out as planned?

Consider this example. A successful business ran into rough weather. The principals withdrew the exclusive mandate and appointed another dealer. The deal with a competing product could not be completed because of a dispute between the shareholders. All of a sudden from being at the pinnacle, the business collapsed. One of the scions, let’s call him Ashley, who was to handle the new venture, found himself out on a limb.

Having been a part of the business for a few years, can he now look for a job or should he find a new venture to start. Being an engineer he will surely get a job, but will he have the required attitude? To start does he have the big idea, he might have the infrastructure but starting from scratch calls for a different attitude. No easy answers here for sure. You can see things did not go as planned.

I am reminded of my own experience when I decided to start. I believe that my concept was totally wrong in hindsight. I mistakenly assumed that if I failed I would get back to working. This was far from the truth; fortunately I did not have to fall back on plan B. The reason is simple, had I failed I would have been in deep trouble with the lenders, interest rates in those days was a hefty 19%. No job would have been able to support that burden.

The jury is certainly out on this subject. Should one have a Plan B when starting out? Should one have a Plan B, if the business is running successfully? Would having an escape plan reduce the focus on problem solving or would the entrepreneur “cut and run” to Plan B at the first sign of trouble.

I would like to believe that the best way would be to burn all your bridges so that turning back is not an option. It is more like you are in a hole and the only way out, is up. I would like to modify the old adage, “Necessity is the mother of Innovation” and innovation is the mantra for the success of any business. This kind of thinking would not be out of place for an entrepreneur because as a breed, entrepreneurs have a higher risk profile.

This logic should not be confused with de-risking of a business or diversification. Imagine you are making rotary telephones, today's kids will ask what a rotary telephone is. It would be bad management if the business did not see the writing on the walls and switched to digital instruments, that is not plan B- that is a running business decision.

Diversification is also a method to de-risk a business and not a fall back option, it is a must. We started with tanks but slowly and surely diversified into the more demanding custom moulded roto-moulded parts. This is part of the business process.

That still leaves Ashley from my example above. What should he do? Could he have done something earlier? There can be no back plans for bad management decisions. You cannot start with a back up plan that factors in shareholder issues. If the share holders do not realise that “cutting the nose to spite the face” is a bad management decision, not even God can help such a business. The only thing Ashley could have done earlier is read the writing on the wall and started planning his next move. Even so now that he knows he has to move fast, difficult no doubt but never the less “better late than never”

In summary I believe we start a business to succeed and no other thought must dominate that vision. While running our business we can and must look at issues which can affect the business negatively and take suitable action to prevent failure.