Navigating through the Economic Blues

Like many other small to medium companies we are also being tested in the economic conditions – delayed payments, delayed sales decisions, delayed cash inflow. I would like to share some thoughts on how we can counter this situation. We are implementing many of the following to gear up for the rough weather. I hope others find this useful and hopefully some others can provide better suggestions:

1. Dont put complete faith in investors for cash flow
Its good to be a funded company in this environment. However, I would like to caution my fellow entrepreneurs that unless you have the money in the bank dont count on it. Many investors release payments in tranches over a period of time (say 5-6 months). Assume the worst case – investors may not able to release the latest tranche when the time comes. Its not because they dont want to give, its just that may not have the cash to give. Remember, investors (such as VCs) themselves raise funds from other investors. With the current cash crunch, its better to be prepared for the worst (and given the current economic uncertainty “worst” case is quite likely to occur). Dont make the mistake of planning your execution based on cash you “definitely” expect to get next month (or even next week). Treat investor cash as an added “bonus”. This particularly applies for services based companies which usually should be able to do well without investment as well.

2. Laser Focus on BD
Sales is the life blood of business. Put all your energies on actually meeting sales targets. Have daily sales update calls. Change the incentive structure – reduce the base salary and instead add two layers of bonus structure. Maybe if they achieve 50% of their targets they will get their original salary. When they achieve 75% they get more. When they achieve 100%
their total payment is actually much more than what they would have got before. The idea is – your competitors are as desperate as you are, without concerted sales efforts there is no way you can tide this crisis. In fact increase mktg/ sales budgets. If something is working in mtkg double the investment in that – of course make those investments in the right areas and in the right people.

3. Everyone should sell
This is an offshoot of the previous point. Think of ways where everyone (including admin, technical) contributes to sales. Often it takes an yr or two for small companies to consistently predict revenue flows. During this time everyone is figuring out the right value prop that sells. You will invariably find a few sales people who are actually meeting their targets and many who are not. Follow the 80/20 rule and cut down the sales team which is generating only 20% revenues. Instead rope in admin, development to augment the star sales people. Admin can make calls, fix up meetings. Technical folks can accompany sales and provide compelling arguments to convince the customer. This will ensure that your number dogs get more time to actually focus on meeting numbers and not on how to convince customers.

There are other obvious mantras to be implemented. They have received wide coverage and everyone knows them so I wont expand on them:
1. Cash is king
2. Prepare for the worst
3. Cut your workforce to the bone. Its better to cut more than cut less. In fact cut so much that you have money left to hire the best.

Hope this helps.

Reposted from http://www.venturewoods.org/index.php/2008/11/06/navigating-through-the-economic-blues/

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