Managing Your Internet Business During Recession Years
By Spartina Staff
Here are some key principles for taking care of business during a recession.
These principles were shared by Jerome Lecat, CEO of Bizanga, David Hehman, CEO of Spartina and Karen Northup, CEO of Corefino:
1. Survive. This means making tough choice and possibly slowing down growth to preserve cash. Take swift action. Validate the business model and morph the business if necessary.
2. Over-communicate with your employees, your customers and your investors. They’re all going to be nervous, and if they don’t want to read your e-mails or tape the conversation, then that’s their choice.
3. Look at downturns as opportunities. Saving money and cutting expenses is about half the story. But there are also tremendous opportunities for strategic acquisitions because you can buy companies on the cheap. You can gain market share because your competitors are not going to. You can also build great talent because there’s going to be a lot of good people that will be out of jobs. No one’s ever saved their way to prosperity, even in bad times. Well-managed companies don’t just batten down the hatches, but they are able to see the field in the future and leverage the bad times as unique buying and growth opportunities.
Principles for Trimming Costs
1. Examine expenses in engineering. It’s not the right time for new product introduction or new features. Keep up the R&D on something you will deliver in 18 months when the competition might not be able to fund its R&D.
2. Watch sales and marketing. Trim down sales and marketing to what you think you can get from the market in the downturn.
3. Freeze hiring. Reduce staff, especially anyone who’s underperforming. Take aggressive action and do it now. You can go down to just the CEO and the CTO if needed.
4. Renegotiate with all your suppliers. Review merchant rates on credit cards, phone charges, rent.
4. Get creative with bonuses. Give more stock instead of cash.
5. Have 12-18 months of cash. If you are backed by investors, seek a bridge.
6. Restructure. Even if it costs money, it would bring equal long-term results.
Key Elements Of A Management Dashboard And Creative Metrics/ Controls.
1. Start with sales pipeline. A way to look at the sales pipeline is very different depending on your business. What is number of prospects you have? Is there a specific stage in your sales forecast that is meaningful? Look at cash flow forecasts, sales, etc.
2. Look at key expense items.
3. Follow Customer satisfaction. Call each of the major customers once a quarter to measure their satisfaction, then make a metric out of it
4. Have a real-time dashboard. Make it the homepage for everybody when they log in to their computer on your intranet. Or send an e-mail every week with all the key metrics about the business, and encourage people to understand how they can make a difference to moving them in the right direction. Or, put a screen in the employee lobby — that shows the metrics so that every employee — and just also on our company intranet — sees exactly the metrics that we’re monitoring as a management team, as well as our investors, and get them to monitor them also, because they’re really on the front line with the customers.
5. Use a waterfall chart. This is a dynamic approach to forecasting. (On spartina.com type in “waterfall”, you’ll find a blog post that actually has an Excel template you can download.)
Finance Disruptions and Protecting against them.
1. Watch your back. Watch especially in areas where you know that this is not your core strength.
2. Open up your bank statements and look at them. Read you financial statements every month. Have an external party look at your books and close them out every month.
3. Manage accounts receivable very closely. Don’t let them age too long. Get in touch with the customer. Work out payment plans if they need time.
4. Focus on the terms and conditions of contracts. If you’re thinking of terminating a hosting relationship, make sure that you’re not going to get hit with some big fee. And likewise, as you sign new contracts, try to negotiate out any termination provisions. Add a convenience clause so that you could exit with a 7 to 30-day notice and no penalties.
5. Trust your gut and your intuition. If you think that there might be a problem, there most likely is, and it’s usually bigger than you think. Investigate and act immediately. And that’s in finance, sales, marketing, engineering. It goes across all companies.
Results of Shifting To An Outsourced Finance And Accounting Model.
1. Reliable and simple.
2. Accuracy. In this area, it’s critical. Errors are just too costly. You need accurate, timely data, and that’s what you’re using to make great business decisions, and you want to be able to make those decisions quickest.
3. Controls and procedures put in place. It clarifies how the various finance functions work. How do we handle all the invoicing? How do we handle travel-related expenses? This just helps the company run smoothly and it eliminates a lot of confusion.
4. Diligence-ready. If you’re confronting a financing event or selling your company, you want to have everything ready. You don’t want to scramble to shore up areas that you’ve overlooked in your business.