# Crisis Playbook — When Things Go Really Wrong

Crises aren't random. They fall into predictable categories. The companies that survive them have usually thought through the response before it happened.

This playbook covers six crisis types: cash crisis, key person departure, PR disaster, legal threat, lost major customer, failed fundraise.

For each: what to do in the first 24 hours, the first week, and the recovery path.

---

## Framework: The First Response

Every crisis response starts with the same three questions:

1. **What is the actual scope?** (Not the fear-amplified version — the real facts)
2. **Who needs to know, and in what order?** (Don't broadcast before you understand the problem)
3. **What's the first stabilizing action?** (One thing that stops the bleeding or prevents it from getting worse)

The biggest mistake in crisis response: reactive communication before you understand the situation. The second biggest: waiting too long to communicate once you do.

---

## Crisis 1: Cash Crisis

### Definition
Less than 6 months of runway at current burn, without a funded plan to extend it.

### First 24 Hours
- **Get exact numbers.** Not approximate — exact. Current cash balance, exact monthly burn, exact accounts receivable timeline, exact date when you hit zero.
- **Stop discretionary spending immediately.** Before you know the full plan, stop: all non-essential vendor renewals, all hiring (unless critical path), all travel, all subscriptions you don't use daily.
- **Call your board chair.** Not the full board — the chair, one-on-one. This conversation: "Here's the situation. Here's what I know. Here's what I'm doing today. I want to schedule an emergency board call for [48 hours from now]."
- **Do not tell the broader team yet.** Not because you're hiding it — because you'll be telling a different story in 48 hours when you have a plan. "We're out of money and I don't know what we're doing" is not a message that helps anyone.

### First Week
- **Model three scenarios.** (1) Raise now — how long and at what terms? (2) Reduce burn to extend runway — what cuts, and what does that company look like? (3) Bridge from existing investors — is that realistic?
- **Emergency board meeting.** Present the three scenarios. Make a recommendation. Come with a plan, not just a problem.
- **Start the raise immediately if that's the path.** Cash crises give you no luxury of preparation time. Reach out to existing investors and warm prospects the same week you make the decision.
- **If cutting, do it once and do it right.** See hard_things.md — layoffs section. Dragging it out is worse.
- **Communicate to team within one week.** After you have a plan. Honest, direct, with clarity on what it means for their jobs. "We have N months of runway. Here's what we're doing. Here's what this means for you."

### Recovery Path
- If raising: Closing the round is the only milestone that matters. Assign someone to own diligence data, legal docs, and investor follow-up. This is now the CEO's full-time job.
- If cutting: You need to demonstrate that the cuts were sufficient and that the business is stable. Three straight months of burn at or below plan is the proof point.
- The narrative question: "Why did this happen and why won't it happen again?" You will be asked this in the next fundraise. Have a direct, honest answer.

### What kills companies in cash crises
- Raising a bridge that isn't a bridge — it extends pain without solving the underlying problem
- Cutting too slowly (two rounds of cuts) — kills morale and loses the people you want to keep
- Hiding it from the team until it becomes a rumor — the rumor is always worse than the truth
- Not raising the issue with the board until it's critical — board members are more useful with more lead time

---

## Crisis 2: Key Person Departure

### Definition
A person whose departure significantly impacts company execution, customer relationships, or team stability. Usually C-level or a critical technical/commercial lead.

### First 24 Hours
- **Clarify what "departure" means.** Resignation? Fired? Mutual agreement? The situation determines the response.
- **Assess the actual impact.** What does this person own that isn't covered? Who on the team will be most affected? Do any customers have primary relationships with this person?
- **Secure institutional knowledge.** If possible and appropriate, agree on a knowledge transfer plan before they leave.
- **Notify the board chair.** Same day. Same rule: facts only, no spin.
- **Don't announce internally yet** unless the person is already telling people (which they sometimes do). Get ahead of it by a few hours if possible.

### First Week
- **Control the narrative internally.** All-hands or department meeting within 2–3 days. Honest: "Name is leaving. Here's what I can share about why. Here's the plan." Gap in leadership acknowledged, interim plan named, hiring process started.
- **Handle customer relationships.** Identify the top 5-10 customers with a relationship with this person. CEO or another senior person reaches out personally. "I want to make sure you hear from me directly..."
- **Announce interim ownership.** Don't leave reporting lines and responsibilities ambiguous. Even a temporary assignment provides stability.
- **Start the search.** Don't wait. The bench is always thinner than you think and searches take 3–4 months.

### Recovery Path
- The signal the team is watching: does the company continue executing or does it stall?
- Keep shipping. Keep hitting targets. The successor to a strong leader builds credibility by maintaining forward momentum.
- Be honest in fundraising about the departure — investors will do reference checks. "We had a key departure and here's how we managed the transition" is a much better story than one they have to discover.

---

## Crisis 3: PR Disaster

### Definition
A story, social media incident, or public situation that damages brand, reputation, or customer trust. Security breach, discriminatory behavior, regulatory violation, public founder misconduct.

### First 24 Hours
- **Establish facts before you communicate.** What actually happened? What data was affected? Who is affected? What is the extent?
- **Activate legal counsel immediately.** Before any external communication. Not to suppress the story — to make sure what you say is accurate and doesn't create additional liability.
- **Designate one spokesperson.** Only one person speaks to media, posts on social. Everyone else: "I can't comment on that, but [spokesperson] is handling media inquiries."
- **Acknowledge, don't stonewall.** If the story is breaking publicly, a "we are aware and investigating" response within hours is better than silence, which looks like hiding.

### First Week
- **Communicate to affected parties first.** If it's a data breach: affected customers before media. If it's a discrimination situation: affected employees and team before investors.
- **Draft a public statement.** Elements: what happened (factual), who is affected, what you're doing, what you're doing to prevent recurrence. No corporate-speak. No deflection. No passive voice ("mistakes were made").
- **Proactively update investors.** They'll hear about it anyway. Hearing from you first, with context, is materially better.
- **Execute the response plan.** Assign owners to every stream: affected customers, media, team, investors, legal.

### Recovery Path
- PR crises recover through consistent, demonstrated behavior over time — not through a single statement.
- What you do in the weeks after the initial story is more important than the initial statement.
- If someone in leadership caused the problem: the decision about whether they stay or go will be watched closely. Protecting the wrong person damages recovery.
- Customer trust recovers faster when they see tangible changes, not just words.

---

## Crisis 4: Legal Threat

### Definition
Significant legal action: patent claim, employment lawsuit, customer breach of contract claim, regulatory investigation, IP dispute.

### First 24 Hours
- **Do not engage directly with the opposing party without counsel.** Nothing — no calls, no emails, no messages.
- **Get legal counsel on the call today.** Not next week. If you have outside counsel, call them. If you don't have a relationship, get one immediately.
- **Document what you know.** The sequence of events, relevant contracts, communications. Don't delete or alter anything — that can become a separate problem.
- **Tell the board chair.** Same day. Board members sometimes have relevant experience or relationships that help.

### First Week
- **Assess exposure.** With counsel: what's the realistic worst case? What's the likely case? What's the cost range?
- **Determine response strategy.** Fight, settle, or ignore (only for clearly frivolous claims with no risk). Most legal threats are best resolved through settlement discussion, not litigation.
- **Evaluate business impact.** Does this affect fundraising? Customer relationships? Employment contracts? Scope the full impact.
- **Communication plan.** Employees? Customers? Investors? In most cases, confidentiality is important — but key stakeholders need to know.

### Recovery Path
- Most legal threats resolve. They resolve faster and cheaper when addressed directly and early.
- Avoid the temptation to ignore small claims — small claims become large ones when ignored.
- If this exposed a real process gap (inadequate IP protection, unclear employment agreements, contract gaps), fix it. The litigation is the signal; the underlying gap is the problem.

---

## Crisis 5: Lost Major Customer

### Definition
Churn of a customer representing more than 10% of ARR, or whose departure creates a dangerous narrative ("even your biggest customer left").

### First 24 Hours
- **Get the real reason.** Not the polite exit reason — the real one. Ask directly: "I want to understand what we could have done differently. Not to change the decision — to learn." Sometimes they'll tell you.
- **Assess financial impact.** Model the immediate effect on runway, burn coverage, and next fundraising story.
- **Notify the board chair.** If this is >10% ARR, same day. No surprises at board meeting.
- **Do not panic-announce internally.** You need a plan before you tell the team.

### First Week
- **Understand the signal.** Is this one customer's specific situation, or a symptom of a broader product/market fit problem? The answer changes the response completely.
- **Address the team.** The team will notice a major logo disappear. Name it, explain what you know, explain what's changing.
- **Accelerate pipeline.** If this creates a gap to target, which deals can be accelerated? What expansion opportunities are there with existing customers?
- **Review other at-risk customers.** Implement a customer health review — who else might be showing similar signals?

### Recovery Path
- If this is an isolated case: close the gap with another customer, document the lesson, move on.
- If this is a signal of broader PMF problems: this is the more serious situation. What are customers getting from you that they can't get elsewhere? Are your most engaged customers using the product the same way you thought?
- The fundraising question: "We lost [major customer]. Why?" Have a direct, honest answer that includes what you changed as a result.

---

## Crisis 6: Failed Fundraise

### Definition
A fundraising process that ends without closing: term sheet pulled, lead investor passed, round didn't close, or bridge not available.

### First 24 Hours
- **Assess actual runway.** How much time do you have at current burn?
- **Identify where the process broke.** Was it valuation? Team? Product? Market? The "why" determines the path.
- **Immediately convene board.** You need their help and their network. A failed raise is not something to manage quietly.
- **Do not tell the team yet.** You need a plan first. "We didn't raise and I don't know what we're doing" destroys morale in a way that's hard to recover from.

### First Week
- **Model survival scenarios.** At current burn: how long? At 50% reduced burn: how long? What does the reduced-burn company look like? Is it sustainable?
- **Identify specific reasons the raise failed.** Investor feedback, even if uncomfortable. "The market doesn't understand our vision" is not useful. "Three investors said the unit economics weren't believable" is useful.
- **Evaluate alternative paths.** Revenue-based financing, venture debt, strategic investment, customer advance payments, bridge from existing investors, acqui-hire.
- **Communicate to team.** Within one week. With a plan. "Here's what we're doing. Here's what this means for the team."

### Recovery Path
- The raise failed for reasons. Fix the reasons. If it was valuation: you may need to lower expectations. If it was market: you may need to refocus. If it was metrics: you need to improve metrics before the next attempt.
- Failed raises are more common than founders discuss publicly. Most companies that eventually succeed have had at least one.
- The companies that recover from failed fundraises usually do so by extending runway aggressively (cutting), finding a lead from outside their normal network, or changing something material about the business.
- **Do not do bridge rounds as avoidance.** A bridge that extends your runway 3 months to a problem you haven't fixed is not a solution. Only bridge if you have a specific, credible path to a successful close.
