The current circumstances pose a challenge to all of us in our personal as well as professional lives. In times like this it helps to have some perspective drawn from similar instances in the past, even if they were not quite of the same magnitude. Small businesses, especially those serving larger companies, are particularly vulnerable to economic storms. We feel every wind shift even in normal times, so earthquakes and tsunamis such as this hit particularly hard. Having survived three such upheavals since starting my business more than 20 years ago, these are my observations:
The Dotcom Bust
I happened to start my first company in July 1999, at the height of the dotcom boom. It was an excitement-packed time. I left a very nice position as a senior executive at a major bank to start my company. One impetus, by no means the only reason, was that our direct marketing agency approached me and offered to fund me if I started a company focused on data and analytics to help handle the emerging gusher of data.
Companies were rushing to establish their presence on the internet along with the innumerable dot coms that were starting up, heavily funded by venture and corporate funds. I did not accept money from any of these entities, despite many term sheets being on offer – fortunately, as it turned out.
We were off to a great start, profitable in our first month of operations and it stayed that way for a year. We served many companies, some of which went on to become great successes, like Priceline, and others that ended up in the dustbin of dotcom history, such as Lycos, the major search engine of that time. The dotcom bust a year later hit us hard – really hard. Most of our clients struggled. Some were sold off and others just shut their doors.
The World Trade Center
We pivoted successfully and diversified into other industries, including telecom, travel and hospitality, which all needed help with customer data, analytics and marketing automation. Just as we had reestablished ourselves and thought we had found our footing — establishing two new offices, including one in New York City –two planes rammed into the World Trade Center, literally raining smoke and ashes on our office just a few blocks away.
We had grown dependent on a few major travel and hospitality companies, like Starwood, that saw the bottom fall out of their businesses almost instantly, Travel ground to a halt and rooms were empty of occupants in no time. Between September and October of 2001, we lost 70% of our revenues in a single month as contracts were terminated by clients concerned about cash flow.
Having learned a bitter lesson in the vulnerabilities of short term contracts, we took some drastic measures and successfully pivoted once more to a hosted database marketing services business, with long term contracts and sticky relationships that were not as easy to disentangle in hard times. This turned out to be a very successful business model, which ultimately led to our being sold at an attractive multiple at the height of the financial crisis. We closed our transaction on December 31, 2008 at the very nadir of the crisis, when pessimism and gloom reigned.
Our new parent had a very stable revenue stream that was untouched by the Great Recession and proved to be a great shelter in the storm. This gave us the room to make another major pivot, away from financial services –which were then our mainstay– to focus on digital media, entertainment and telecommunications companies which had weathered the recession very nicely.
We launched our current company in 2014, this time a customer data and analytics platform, staying close to our domain expertise but with a different business model as a software company. After 11 years of rising markets, increasingly rich valuations and in the middle of a hot and hyped market, what could possibly go wrong? You know the answer.
A nanoscopic lifeform originating halfway across the world has now turned the entire world upside down, bringing whole economies down to their knees. Survive this we will, but how? Time will tell, but our experience with these lesser calamities offers some lessons:
- Stay healthy, mentally and physically, and try to be calm through this time. Panic and anxiety will lead you astray and drive poor decisions.
- Be honest with your people. Let them know you are hurting and ask them to help. Ask them for ideas and share the burden, where possible. You may be surprised what they come up with.
- Focus on saving existing revenue to the extent possible. This may involve being proactive with customers and demonstrating value while showing flexibility. Look for those customers who are doing relatively well or even thriving under these circumstances. There may not be many of them, but they do exist.
- Are there ways you can help customers during this time? In our case, if our clients’ marketing budgets are cut, our platform can help them segment their customer base more finely, enabling them to target customers more accurately with more finely tuned messages tailored to these times, while simultaneously reducing spending.
- Take a very hard look at your business. What is absolutely necessary to continue to operate and keep the doors open? Question every assumption. Classify every expense into three categories – fat, muscle and bone, i.e., dispensable, necessary and critical for keeping the door open and living to fight another day.
- Cut fast and cut deep, all the fat, and, depending on your specific situation, some of the muscle as well. It is going to hurt, but avoiding pain now may come back to bite you in a bigger way down the road. Hope is helpful but misplaced optimism can be as deadly as the virus.
- Get it done, put it behind you and start planning for the rebound. It will come and you do not want to be caught unprepared. If a pivot is called for, plan for it now, but wait until you are ready to act on it and execute.
- Pray for Grace to whatever power you believe in. You are going to need friends in high places to get through this.
This too shall pass. Where will you be when it does?