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

• Structure follows strategy - Decide what you're doing, then organize for it

• Minimize layers - Fewer layers = faster decisions

• Clear ownership - Every important thing has one owner

• Right-size functions - Match resources to priorities

• 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 outcome any of us wanted, but after careful consideration, it's the right decision. Here's what this means for you... [severance, timeline, support]."

To customers:

"We're writing to inform you that [Company] will be ceasing operations on [date]. We're grateful for your business and want to ensure a smooth transition. Here's what you need to know... [timeline, data, alternatives]."

To investors:

"I'm writing with difficult news. After careful evaluation, we've decided to wind down operations. Here's the situation... [what happened, what's left, what the process will be]."

Additional Resources

For detailed guidance, see:

• references/financial-restructuring.md

• Detailed financial restructuring tactics

• references/winddown-checklist.md

• Complete shutdown checklist