Tuesday, November 29, 2011 at 11:05 am.
3 things your startup can learn from the American Airlines bankruptcy
American Airlines parent company AMR filed for Chapter 11 today, to restructure, cut costs, and ideally, to return to profitability.
Here’s what I took away with it, when thinking about applying it to the tech world.
- Your cost structure is as important as your revenue structure, and often more important, especially for companies with little to no revenue. Access to funding may be relatively easy for tech startups right now, but still: Grow your costs manageably, or they might eat you alive. (Fortunately, most tech startups can get out of their employment contracts — usually their biggest costs, by far — more easily than an airline.)
- For your most important costs and assets, have a plan for oh-crap scenarios. In American’s case, when oil prices soared, they still depended on a fleet of old, fuel-guzzling planes. It wasn’t until this year that they finally got an order together for more efficient planes, many of which won’t be delivered for years.
- When your competitors are taking advantage of opportunities to reduce their costs, you should too! American was the only major airline that didn’t go bankrupt when everyone else was, and that stuck it with a crappier cost structure than the rest. That pride isn’t worth much now. So, applying this to a tech example: If the cost of bandwidth drops substantially, figure out a way to renegotiate to pay the lower rate, and not last year’s higher rate.
This is a simplistic view of the situation, and there are obviously a lot more factors involved. Also, of course, it’s a different industry with different problems. Still, I think, it’s a good exercise.