How to Save a Startup on the Brink of Collapse

Medium.com's CEO published a lengthy article revealing that the company nearly went bankrupt in 2022.

This can absolutely serve as a textbook case study. Everyone should read it to understand what management does when a company is on the brink of collapse.

(1) Layoffs

At its peak, the company had 250 employees; now it has only 77—a 70% reduction in workforce.

"If we still had a 250-person team, we would definitely have gone bankrupt even if the business had improved."

(2) Office lease buyout

Previously, they leased an office in San Francisco with 120 desks for $145,000 per month.

They terminated the lease entirely, saving over $1 million annually.

(3) Remote work

During the pandemic, they worked remotely and employees worked from home. After the pandemic ended, they realized the company could operate this way—and save money—so they decided to keep it.

"We are now committed to being a fully remote company. The concept of an office is meaningless forever."

(4) Business restructuring

They eliminated all low-margin, high-cost businesses. They used to have a senior editing team responsible for producing high-quality content. But the reality was that few people actually read premium content.

"The most-clicked articles on our platform have clickbait headlines. Their winning strategy: find a Wikipedia article, use it as a knowledge base, pair it with a viral headline, add some exaggerated personal emotional stories, and then collect traffic bonuses from us. The top earner made $20,000."

With no other choice, they disbanded the senior editing team, adjusted article rewards, and shut down all subsidiary companies involved in other business lines.

(5) Debt restructuring

They carried heavy debt from investors, with $37 million in overdue payments that they simply could not repay.

Additionally, investors held liquidation preference—meaning in a company liquidation, investors could recover funds ahead of employees. This gave investors an incentive to push the company toward bankruptcy.

They negotiated with investors, demanding cancellation of liquidation preference and conversion of debt into equity. If they refused, the company would go bankrupt and investors might get nothing back.

(6) Renegotiating employee equity

Startups typically grant equity/options to attract talent; these essentially function as company debt.

If the company wants to avoid bankruptcy, employee equity/options must also be reduced—meaning dilution or cancellation—otherwise new financing is impossible and it would be unfair to investors who agreed to give up part of their rights.

Prerequisite: Medium had cash revenue (membership fees) and was highly successful, which is why trying to cut costs and survive was worth attempting.

For most startups, the reality is almost no cash, burning money to stay alive, and no market share. Such companies are not worth saving; the rational approach is to cut losses as quickly as possible.

There's a well-known principle of "failing fast)"—if failure is inevitable, resources should be freed up as early as possible and redirected toward more promising projects.