Dot.Com Bust & 2010: Back to the Future

By Carl Alguire

Today’s business climate is reminiscent of the bust. Looking at what worked then may hold valuable insights for navigating today’s rough waters. As a bust survivor, I see several similarities:

Cash is King:  Once again cash is king! In 2000, all speculative investment stopped while investors reevaluated, banks revalued assets, and requirements for credit went up sharply. Sound familiar? Companies of today must work hard to be attractive to their lenders. Banks want strong balance sheets, platinum assets, and an established track record. Companies need to shore up bad debt, do independent research on asset values, and push their margins up wherever possible. You never want a banker or investor to suggest you’re not doing everything possible to manage and maximize your cash.

Profitability Analysis:  Are we doing everything we can to maximize our margins? What is my profitability by customer? Now is the time to evaluate if an account is carrying its share of the overhead.  By doing an analysis of profitability by customer, I found a couple of key accounts that had a few extra points that could be leveraged. I was able to negotiate better marketing support and expand the product sold to these accounts.

Overlooked Costs:  Some additional overlooked areas of cost reduction are energy reduction applications (some reducing monthly energy costs by over 30% according to the National Energy Commission), liability protection costs (such as E&O insurance), and negotiated term agreements with vendors and suppliers.

In this economic environment many vendors are more receptive to renegotiation than ever before . . . Now is the time to re-bid your most costly parts and services and see if you can find better terms for less.

Build It and They Will Come . . . NOT:   Don’t speculate big on new business. During the era, everyone was building the biggest engine possible with the expectation that mountains of new business were right around the corner. For most, that was not the case. Companies that did well through the period were those that grew in parallel with their volume and not ahead of it.  In today’s climate, I would much rather wait than speculate. I will extend my days to ship orders, cut deals to accelerate key receivables, and offer new or replacement positions later rather than sooner. Ideally, I want to fill a seat that has a full desk of work before someone sits down.

Start-Up Costs 2.0:  During the last big boom, everyone was starting with a full set of assets necessary to do the job. This caused bleeding edge dollar drain in tech, systems, and personnel. Today, I look for a second generation of everything. With my hardware and software needs I get proven solutions at a fraction of the cost. And not just initial purchase costs but maintenance and support as well. Remember when an SQL programmer was an impossible commodity and if you landed one they might quit because they didn’t like the brand of coffee you bought? Today, highly skilled database programmers are readily available and their rates are negotiable. Also, if I need something for my operation, I leverage every secondary market source I can. Craig’s List is great resource for small and local goods, services, and people; offers worldwide reach, and used equipment companies offer inspections and guarantees before you buy. You can save 20-80% by spending some time on the net.

Under Promise/ Over Deliver:  Finally, for companies that need cash today, capital can cost you your firstborn. I want to make my companies as attractive to investors as possible. With top tier planning and execution, I need to under promise and over deliver wherever possible. Survival comes with good management that exceeds goals and a track record of overachievement. It’s better to revise budget projections downward and exceed them than to repeatedly miss a goal. Second, I want to prove my model before I sell it. Any funding needed to prove a concept will be significantly more expensive than an investment needed to grow sales. And third, investors want to see proof that you are building share successfully rather than creating a “new market”. A new market can imply that it isn’t here today.

How is it that some astute risk takers and visionaries profit from the changes that are not obvious to the rest of us?  They realize the cyclicality of business and wisely apply the lessons of yesterday.


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