If these tougher times can teach us anything, it’s how to run a business as efficiently as possible.
In many respects we were fortunate that, when I was first involved with Broadbean, we were selling to a market which had been decimated by economic events and we didn’t have much cash. Sounds like a strange statement, I grant you, but we learnt to run a tight ship. There was no other option.
We were an unproven company selling web technology to the IT recruitment market, which was trying to recover from the dotcom crash and 9/11. We made a £35,000 overdraft last for over two years.
I have pondered recently whether, had we been spoilt by more favourable conditions, we would have been as successful as we have been. Often strong markets give rise to weak companies. When firms start making lots of money very quickly, it seems like it will last forever and the fundamentals of business-building can be forgotten.
Then, when the market isn’t as fruitful as it was or even crashes entirely, companies quickly find themselves in trouble.
This is particularly true for small businesses without much cash in the bank. It’s rare for a firm to get into trouble overnight. It can happen, of course, but more often than not the rot has set in weeks, months or even years earlier.
Broadbean was an attractive acquisition prospect because we had a sustainable business model. We had: multiple long-term, high-value contracts; excellent deferred income (we charge annually in advance but account for the revenue as we "earn" it); consistent monthly recurring revenue; high client retention rate; and good cash flow.
It wasn’t luck that put us in that position. By placing a higher value on longer term contracts with recurring revenue and a high probability of renewal (even if it meant less money now) rather than focussing on quick wins, we created a solid base for growth. We also didn’t over-extend ourselves by growing beyond our means. We grew organically, not by borrowing.
It’s true that the market conditions and our limited cash in the early days dictated to some extent how we behaved but nonetheless we learnt some hugely valuable lessons and made a point of continuing to run our business in that way when the market boomed.
If we are to enjoy long-term success in business, we must be able to deal with busts as well, if not better, than the booms. For some it is, unfortunately, too late. But for many others the lessons learned now will provide the foundation for much stronger, more sustainable businesses in the future. Who Moved My Cheese anyone?
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