Restructuring Guide

What this skill does

# Restructuring Guide

## Overview

When a company faces financial distress or needs major organizational change, founders must navigate complex decisions quickly. This skill provides frameworks for restructuring, turnaround, and when necessary, winddown.

## Assessing the Situation

### The Financial Health Check

| Metric | Healthy | Warning | Critical |
|--------|---------|---------|----------|
| Runway | 12+ months | 6-12 months | <6 months |
| Burn multiple | <2x | 2-3x | >3x |
| Revenue trend | Growing | Flat | Declining |
| Cash conversion | Positive | Break-even | Negative |

### The Severity Scale

**Level 1: Optimization Needed**
- 9+ months runway
- Business model works, needs efficiency
- Response: Optimize spend, extend runway

**Level 2: Restructuring Needed**
- 6-9 months runway
- Need meaningful cost reduction
- Response: Cut costs, possibly reduce team

**Level 3: Turnaround Needed**
- 3-6 months runway
- Business model may need change
- Response: Major restructuring, pivot consideration

**Level 4: Survival Mode**
- <3 months runway
- Need immediate action
- Response: Emergency measures, consider all options including winddown

## Cost Reduction Playbook

### The Cost Reduction Hierarchy

Cut in this order (least painful to most painful):

**Level 1: Easy Wins**
- Unused software subscriptions
- Over-provisioned infrastructure
- Unnecessary contractors
- Travel and entertainment
- Office perks

**Level 2: Optimization**
- Renegotiate vendor contracts
- Rightsize infrastructure
- Consolidate tools
- Reduce marketing spend
- Defer non-critical projects

**Level 3: Structural Changes**
- Hiring freeze
- Compensation adjustments (salary cuts, deferred bonuses)
- Office space reduction
- Reduce contractor/temp workforce
- Pause matching on 401k

**Level 4: Workforce Reduction**
- Targeted layoffs (underperformers, non-critical roles)
- Across-the-board reduction
- Department elimination
- Executive team reduction

### Cost Cutting Quick Reference

| Category | Typical % of Burn | Reduction Potential |
|----------|-------------------|---------------------|
| Payroll | 60-80% | High (layoffs) |
| Office | 5-15% | Medium (sublease, go remote) |
| Software/Tools | 5-10% | Medium (audit and cut) |
| Infrastructure | 5-15% | Medium (rightsize) |
| Marketing | 5-20% | High (can cut quickly) |
| Travel/Entertainment | 2-5% | High (easy to cut) |
| Contractors | 5-15% | High (easy to cut) |

### The 20/20/20 Rule

For companies in trouble, consider:
- 20% payroll reduction (thoughtful cuts)
- 20% non-payroll cost reduction
- 20% revenue increase focus (or at least protection)

## Runway Extension Options

### Without Cutting Costs

| Option | Pros | Cons |
|--------|------|------|
| Bridge from existing investors | Fast, friendly terms | May be hard to get, dilutive |
| Revenue acceleration | No dilution | Takes time, may not work |
| Collect receivables faster | Immediate cash | One-time benefit |
| Defer payables | Preserves cash | Can damage relationships |
| Sell assets | Non-dilutive | Limited options for most startups |

### Bridge Financing Considerations

**From existing investors:**
- Usually convertible note or SAFE
- May come with conditions (cost cuts, milestones)
- Signals they still believe
- Can bridge to next round

**From new investors:**
- Harder to get in distress
- May have aggressive terms
- Can provide fresh perspective
- May complicate next round

**Bridge terms to watch:**
- Discount (20-25% typical)
- Valuation cap (may be aggressive)
- Interest rate
- Conversion triggers
- Pro-rata rights

## Organizational Restructuring

### When to Restructure

Restructure the organization when:
- Strategy has changed significantly
- Current structure doesn't fit the work
- Too many layers/complexity
- Duplication of effort
- Key functions under-resourced
- After significant team reduction

### Restructuring Principles

1. **Structure follows strategy** - Decide what you're doing, then organize for it
2. **Minimize layers** - Fewer layers = faster decisions
3. **Clear ownership** - Every important thing has one owner
4. **Right-size functions** - Match resources to priorities
5. **Plan for growth** - Structure should scale (even if small now)

### Common Restructuring Patterns

**Consolidation:**
- Combine similar functions
- Reduce management layers
- Shared services for support functions

**Decentralization:**
- Push decisions closer to customers
- Create autonomous teams
- Reduce central coordination

**Function-to-Product:**
- Shift from functional silos
- Create cross-functional product teams
- Embed specialists in teams

**Simplification:**
- Eliminate low-value activities
- Reduce complexity in processes
- Focus on fewer priorities

## Turnaround Playbook

### The 100-Day Turnaround Plan

**Days 1-30: Assess and Stabilize**
- Week 1: Cash assessment, immediate crisis management
- Week 2: Deep dive into financials, customer health
- Week 3: Team assessment, quick wins identification
- Week 4: Develop turnaround plan, get alignment

**Days 31-60: Execute Critical Actions**
- Implement cost reductions
- Shore up key customer relationships
- Address team issues
- Secure bridge financing if needed
- Begin strategic pivot if planned

**Days 61-100: Build Momentum**
- Show early results
- Reinforce new direction with team
- Communicate progress to stakeholders
- Refine plan based on learnings
- Set up for sustainable performance

### Turnaround Leadership

**What to do:**
- Make decisions faster than normal
- Communicate constantly
- Be visible and accessible
- Focus on few priorities
- Celebrate small wins
- Be honest about the situation

**What NOT to do:**
- Hide in your office
- Avoid hard decisions
- Over-promise
- Blame others
- Ignore the emotional toll

## Exit Options

When the business isn't working, consider:

### Option 1: Pivot
- Redeploy team and capital to new opportunity
- See `/pivot-decision` for detailed guidance

### Option 2: Acqui-hire
- Sell primarily for the team
- Typical terms: $1-3M per engineer
- Investors usually get little or nothing
- Team gets jobs, some retention packages

### Option 3: Asset Sale
- Sell technology, customer relationships, IP
- May not cover investor preferences
- Faster than full M&A

### Option 4: M&A (Full Sale)
- Find strategic buyer
- Takes 3-6 months typically
- Need advisor for significant deals

### Option 5: Orderly Winddown
- Shut down operations
- Return capital to investors (if any)
- Handle obligations professionally

### Option 6: Assignment for Benefit of Creditors (ABC)
- Alternative to bankruptcy
- Assign assets to trustee
- Trustee liquidates and distributes

### Option 7: Bankruptcy
- Chapter 7 (liquidation) or Chapter 11 (reorganization)
- Usually last resort
- Significant legal costs

## Winddown Guide

If you decide to shut down:

### Pre-Winddown Checklist

**Legal:**
- [ ] Consult employment lawyer
- [ ] Review investor agreements
- [ ] Understand creditor obligations
- [ ] Check director duties
- [ ] Review contracts for termination provisions

**Financial:**
- [ ] Calculate total wind-down cost
- [ ] Prioritize creditors
- [ ] Plan for final payroll
- [ ] Handle benefits termination
- [ ] File final taxes

**People:**
- [ ] Severance plan
- [ ] Communication plan
- [ ] Reference policy
- [ ] WARN Act requirements

### Winddown Timeline

**4 Weeks Out:**
- Finalize decision
- Inform board
- Engage legal counsel
- Begin planning

**2 Weeks Out:**
- Inform leadership team
- Prepare communications
- Plan logistics

**Announcement Day:**
- Inform all employees
- Begin customer notification
- Handle press if needed

**Weeks 1-4:**
- Wind down operations
- Transition customers
- Complete employment obligations
- Settle vendor obligations

**Weeks 4-12:**
- Final asset disposition
- Final legal filings
- Close corporate entity

### Communicating a Shutdown

**To employees:**
> "I have difficult news. We've made the decision to wind down the company. This wasn't the