The situation
The CEO wanted to raise money for a new venture. When we evaluated his existing business, it was not very profitable.
That is a more common position than it sounds. The instinct, when a founder has a new idea, is to go and find outside money for it, because the existing business already feels fully committed. But an unprofitable business does not raise well. Investors price the thing in front of them, not the thing the founder is excited about, and a weak operating result on the way into a raise costs equity that never comes back.
What I did
Instead of raising, we cut.
We went through the cost base together, line by line, and separated what was producing revenue from what was there because it had always been there. Most cost bases at this stage have a layer of the second kind, accumulated during a growth period when nobody had time to look.
Then we made the hard call to let go of forty people. That is the part of this story that is easy to write in one sentence and takes months to do properly. It has to be planned in an order that leaves the remaining operation able to function, and it has to be communicated by someone who is not hiding.
Then we planned the succession. The full strategy for moving him out of the CEO seat and bringing in someone new. Once the new CEO was in, I facilitated the handover between the two of them, so the transition actually held.
Founder-to-CEO handovers fail quietly more often than they fail loudly. The new CEO is appointed, the founder stays involved, and the organisation keeps routing decisions to the person it has always routed them to. Then everyone concludes the hire was wrong. The handover has to move the decisions, not just the title.
The result
- $800K freed up in the first quarter
- Operating costs down 50%
- The new venture funded from inside the business, with no raise
- A clean transition to the new CEO
Why it worked
The money for the new venture was already in the building. It was just being spent on the old one.
Cutting is usually framed as the defensive move and raising as the ambitious one. In this case it was the other way round. The cut funded the new product without giving away any of it, and it left the original business healthier than the version that would have gone to investors.
The succession is the part that made it durable. A founder running two things at once does neither properly, and the new venture is always the one that gets the leftover hours. Putting a new CEO into the original business was not a demotion. It was how the second company got a founder.
If you are about to raise
Run the numbers on the alternative first. Take the cost base apart and ask, for every line, whether it is producing revenue now or whether it is producing comfort. Fifty percent is not always there, but something usually is, and it is money you do not have to give equity for.
Then ask the harder question. If the new thing is worth doing, who is going to run the old thing? If the answer is you, part-time, then the plan has a hole in it that no amount of funding closes.
The company started in a new direction with a new product, paid for by money that was already in the building.