What I learned from surviving the financial crisis

There are already some great posts by founders who have survived previous crises (this by our own Robin Klein and this by Pete Flint).

Finalta, the company I co-founded was just under four years old when the financial crisis hit. It was brutal, our major customers were suddenly on the verge of collapse and what followed was an 18-month battle to survive.

As founders battle Covid, I’ve dredged up a few war stories which I hope will be useful. Given the nature of my business, these are skewed towards the enterprise sector.

1. As a founder, accept your outlook will be overly optimistic. It’s entirely natural, new products you have worked on, hires you’ve spent months trying to make — you’ll have a vested, emotional attachment to each. This will cloud your thinking. I’d never experienced a downturn whilst my co-founder was battle-hardened by the 90s recession, black Wednesday and 9/11. To my protest, he insisted we took rapid and drastic action. I thought he was being heavy-handed — his decisions saved our company.

2. Don’t be fooled by spillover contract wins. If you’re selling to enterprise customers, it will take time for CEO-led cost-cuts to trickle down. Your buyers will also know what’s coming so will look to close out what they can before the hatchet comes down. Don’t misread the signals.

3. Brace for contract negotiations… Once the hatchet has hit discretionary spend, welcome to contract renegotiations and enter the Head of Procurement. Their objectives (and comp) are tied entirely to success in contract renegotiation. It doesn’t matter if yours is a $10m or $50k contract, they’ll be looking to take 50% off. You’ll need two things — a bulletproof case of why your product or services costs what it does (and why it’s impossible to restructure) and inside help from your actual buyer on how to play the game.

4. …and bad debt. We’d never experienced big banks being unable to pay. Sure, we’d had all the usual fun with delayed payments but this was virgin territory. Apply the same basic principles of debt management to your business. Resource properly, move fast and chase daily. At the same time define a clear process, with escalations as debtors mount. You’d be surprised by how good salespeople can be in this role — if they’re not selling or being laid off, you may want to temporarily redirect.

5. Walk and talk with your co-founder(s), lots. Of course, we were knee-deep in scenario planning, making horrible lay-offs, repositioning our value prop, etc. But we also reverted to the routines of our first 6 months when it was just the two of us. We returned to two things that served us well — a 30-minute coffee to start every day and a walk whenever possible. This time may feel indulgent but it might just be the most valuable time you spend.