Sunday, March 1, 2009

Common Sense - The Module not Taught at Harvard

It goes without saying that the current climate is creating great difficulties for companies trying to grow. It is hard enough just to survive! Most sources of capital have dried up, leaving managers and company board's scratching their heads about how to navigate the uncertain period.

For what it's worth, we are globally pessimistic with respect to 2009, and somewhat unsure about the prospects for 2010. If I had to guess I would suggest that when economic growth does return it will not be stellar, and will be accompanied by inflation as the money printing eventually take its toll.

As most other active fund mangers have done we remain in close contact with our portfolio companies at this time, in an effort to help them amend business plans to bring them in line with reality. We have seen some funds send out very radical presentations, which have inevitably been sent across the entire web, more or less prophesying melt down and advocating slash and burn tactics to stay in business. Perhaps the most famous of these is the now infamous Sequoia Good Times RIP presentation.

Whilst it is true that trimming the expenses has to be part of the survival strategy we do not think that is should be the only tool, and in fact each company has to look at its own unique situation before making possibly fateful decisions, with medium and sometimes long term consequences.

Common sense as a business tool is somewhat under rated, and to the best of my knowledge is not "taught" as a separate module in the great business schools of the world. Nevertheless at times like this (and probably even in the good times) it is helpful to remember how this "business philosophy" can illuminate the economic darkness in these trying times. A couple of common sense examples for us might be:

  • Looking closely at what is really core to the business:
    • This does not mean only core revenue streams, or profit centres; but which people or products could I not do without in the running and future of my business.
  • Is my sales messaging or branding suited to the current environment
    • Business savings and efficiencies, as opposed to faster go to market
  • How can I shorten sales cycles or delivery lead times:
    • Emphasis on existing customers, or market niches where I have proven success
    • Pricing strategy or financing terms

Obviously these are specific examples, based on our own companies and experiences, probably different to the companies relevant to your universe. I would like to draw your attention to a great article published over the weekend in the Jewish Chronicle of London, based on an interview with Dan Schwarzmann, the PWC appointed administrator for Lehman Bros – what a headache that must be! I am grateful to one of our LP's who brought this to our attention and I think that it gives some really sensible guidelines applicable to almost all companies during the current crisis.

Enjoy the article and I hope that it helps you to navigate the stormy waters that we can expect for some time to come.

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