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Navigating Volatility in the General Economy in Growth Stage Technology Businesses - Dave Litwiller - March 12 2020

General management considerations and actions in my experience to respond to any rapid, temporary contractions in the overall business environment.

These convictions have been formed and tempered in B2B and B2C, hardware and SaaS, and in sectors ranging from semiconductors and robotics hardware to enterprise and platform software

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Navigating Volatility in the General Economy in Growth Stage Technology Businesses - Dave Litwiller - March 12 2020

  2. 2. INTRODUCTION • The following are the most important general management considerations and actions in my experience to respond to any rapid contractions in the overall business environment • These convictions have been formed and tempered in B2B and B2C, hardware and SaaS, and in sectors ranging from semiconductors and robotics hardware to enterprise and platform software
  3. 3. MANAGING THROUGH A DOWNTURN #1: The Best Time to Build Market Share is During an Industry Downturn • Those who invest in increased competitiveness during a down cycle do so when most competitors are in a more defensive stance • Market share and profit share can be gained faster • Opportunistic, well positioned firms during slower times gain more than less adept competitors during the next upswing
  4. 4. MANAGING THROUGH A DOWNTURN #2: Redouble Emphasis on Core Capabilities • Tightly defining core capabilities helps to sustain aggressive investments in the most leveraged and differentiating activities, even during a downswing • This depends upon the related skill of efficient outsourcing and supply chain utilization, to make more of the cost structure variable, preserving investment options during volatile periods
  5. 5. MANAGING THROUGH A DOWNTURN #3: Reinforce Technology Leadership • Old technology usually takes disproportionately large blows during difficult times • Customer purchases in times of trouble (especially in B2B) often shift towards technology upgrades to improve competitiveness and utility, rather than brute force capacity expansions with old technology • Technology leaders are most likely to preserve and grow revenues, and enjoy simpler options for sustaining investment during difficult periods
  6. 6. MANAGING THROUGH A DOWNTURN #4: Focus on Core Markets • Some would prefer to diversify to hedge bets during a downdraft, hoping that some winners will offset pockets of weakness • Typical diversification like this usually fails to achieve market leadership or efficiency, creating more volatility rather than less • Winners reinforce the core business during downturns • This includes selective acquisitions, even though conventional wisdom is to avoid acquisitions during weaker times
  7. 7. MANAGING THROUGH A DOWNTURN #5: Cash is King • Businesses do not go under when the lose money. They go out of business if they run out of cash • Look to wring out cash from the balance sheet (esp. inventory, A/R), and focus on cash management • In an environment where fundraising could well get tougher, get at least 18 months of runway on the balance sheet assuming conservative revenue projections
  8. 8. MANAGING THROUGH A DOWNTURN #6: Verify and Validate Your Forward Analytics • Make sure your forward analytics provide an ability to project revenue changes at least 90 days out with high confidence • Ensure that favourable aggregate growth trends are not concealing weakening recent customer and prospect cohort dynamics • Revisit which forward indicators hold the highest predictive value for near future revenue deltas as conditions evolve, and track them systematically
  9. 9. MANAGING THROUGH A DOWNTURN #7: Retain the Resources to Respond to the Upturn • This applies to people, physical assets and finances • The value of enduring the downturn comes during the subsequent upturn • The business needs to reach the upturn, and exploit it, to realize the value of the stress of the downturn
  10. 10. MANAGING THROUGH A DOWNTURN #8: Time Moves (a bit) More Slowly in a Downturn • Upswings and good times are characterized by a frenzy of selling, building and shipping. It is sometimes difficult to get mind-share for anything other than maximizing near-term results • Downturns are when salespeople and executives should spend more time with customers. Slowdowns are when customers are more likely to have time to talk about the future and consider unconventional ideas • Use this time to better understand customers and partners, and deepen relationships
  11. 11. MANAGING THROUGH A DOWNTURN #9: Communicate More • In the fight or flight reaction, some would rather clam up when times are tough • In bad times, people know it, and you’re not making things any worse by talking with them • A downturn is an opportunity to bond, and create a sense of shared mission • This makes the business stronger through good times and bad in the future
  12. 12. MANAGING THROUGH A DOWNTURN #10: Treat Business Partners as Teammates • The conventional approach in tough times is to demand price cuts from suppliers and partners • The value of a small price cut is usually more than offset by reduced morale, co-operation and productivity from those partners in the future • A more valuable and enduring approach is to work with those parties in a down cycle to gain efficiency, to generate cost savings that will be shared • Areas to look for savings include: duplicate operations; improving cycle times; curtailing errors, waste and rework; reducing inventories; and, increasing forecasting accuracy
  13. 13. MANAGING THROUGH A DOWNTURN #11: Don’t Accept a Downturn as a fait accompli • Innovation and new applications can still drive growth, even in a down market
  14. 14. MANAGING THROUGH A DOWNTURN #12: Act Quickly • Options usually diminish as time goes by if action is not taken promptly in a softening business environment • If cuts have to be made, do it once and deep enough to restore some go-forward investment flexibility to be able to co-adapt internal skills with evolving strategy • Re-centralization of managerial decision making is often necessary for a while, for staffing matters, major expense commitments, and capital purchases • Increased availability of talent during difficult macro conditions can make it easier for well situated firms to quickly build new high performing teams and products
  15. 15. MANAGING THROUGH A DOWNTURN One More: Everyone be Selling • Get everyone in the organization in a sales mindset about the business and its products • Make it a point of honour to be selling the value proposition all the time to grow revenue and ecosystem allegiances
  16. 16. MANAGING THROUGH A DOWNTURN Overall: • With the outsized growth rate of the technology industry usually comes outsized volatility in times of turbulence • The ability to consistently exploit general downturns is a defining trait for high performance technology companies • Those firms that can best deal with volatility develop an enduring image for being well managed • This position becomes self-reinforcing as it attracts stronger and more loyal partners and employees • The ability to inspire confidence even in times of volatility, and sustain competitiveness investments, helps to build market share and increase the momentum of the growth flywheel
  17. 17. FOLLOW-UP To further discuss navigating economic turbulence in rapidly scaling technology businesses: