Lesson #323: How Your Business Survives A National Crisis Or Pandemic

Welcome to our new grim reality in the wake of the Coronavirus pandemic; the days of “wine and roses” and never-ending increases in business success and stock market price increases are officially over.  Sure, you are now feeling the impact of the “baseball bat” smashing through your “glass house”.  But, continuing with the baseball analogy, we are still in the “early innings” towards recovering to any sort of normalcy.  So, what do you do now, to help “batten down the hatches” to make sure your business survives this tumultuous blow?  Lucky for you, I lived through something very similar in the wake of the September 11th crisis in 2001, recapped in this article.  And below, I share my suggestions on the immediate steps you need to be taking with your business right now.

Forecasting Revenues

Your future revenues will materially vary based on your business and how badly it is impacted by the Coronavirus quarantines and other impacts.  As example, if you are in the travel industry dependent on tourism, assume the worst.  You may not have any material revenues in the next six months, at least (about the same length of time my iExplore business was impacted by September 11th).  That includes businesses that are specifically tied to an effected industry (e.g., selling furniture to restaurants).  On the flip side, if you are in the hand sanitizer or home-based entertainment business (like Netflix), your are probably going to see a big upside in your revenues, with more people needed those types of products or services during this time.  With most other businesses ending up somewhere in the middle.  For example, as the stock market crashes, people have less wealth or people lose jobs, and then they spend less on just about everything.  So, the more “discretionary” your product, the more you are at risk, as compared to “must have” products.

So, to be safe, if you are in one of the hardest hit industries (which I will continue to focus on in this article), be conservative and ask yourself what you need to do to if absolutely zero revenues comes in for an extended period of time (e.g., six months).  That would be a crippling blow to most any business.  You most likely aren’t sitting on excess cash that can fund six months worth of operating expenses, and raising capital from outside lenders or investors will be close to impossible, unless the government steps in with a big bailout package.  So,  you are going to have to get creative here, which typically means cutting expenses down to the bare minimum, “keep the lights on” levels.

Downsizing Expenses

Effective immediately, there is no time to wait, you need to “right-size” your expenses to a level that will get you through to the other side.  That could mean cutting all marketing efforts, at least for a period of time, as your return on marketing spend will be a fraction of its former levels, which will put further negative pressure on revenues.  And, more likely it means cutting way back on your payroll, either by reducing positions or paring back on salaries.  Which will be a big blow to your company culture and morale, so there has to be a clear message to your surviving staff that “cuts have ended” and they are safe and we need to keep them focused on the future.

Lowering Payroll Costs

There are other creative solutions for dealing with payroll.  Perhaps you move your sales team from salaried to commission-only.  That keeps them with the business, but in a structure that they get paid only if revenues from their efforts are coming in to afford their costs.  Or, pay your team with equity instead of cash.  Tell them salaries will stop for this month, and instead they will get extra shares in the business to offset the difference.  Or, tell them we don’t have cash to pay you now, but we will do our best to pay you back in the future, creating a long term debt which will repaid whenever the company can afford that.  But, this last path could be creating an ever growing noose around your neck, and may never get repaid and opening yourself up to legal liability down the road.  Only do that, if you think it is a short-term plug to a known repayment plan (e.g., some known financing in the works).

Bootstrap Financing Options

Guess what, your profitable established business, may have just returned to unfunded startup land.  So, you are going to have to be creative in figuring out ways to fund your business in a world where investment and bank capital will be scarce.  So, re-read this article I wrote on the best ways to bootstrap finance your business with non-traditional sources, to make sure you are exploring all options available to you.  This could be anything from friends & family, to credit cards or home equity loans, to name a few.

Keep The Faith—Stay Positive Minded

No matter how bad it gets, perseverance will successfully get you through the end of the dark tunnel you now find yourself.  If you look at this situation from a negative, “glass half-empty” mindset, your business is doomed to fail.  So, you might as well shutter the business and stop the bleeding right now.  If you look at this situation from a positive, “glass half-full” mindset, that positivity will infuse itself into the culture of the business, the team will rally around you and you will survive with flying colors.  That said, always be honest with your team.  Don’t cherry coat reality, and keep it realistic, as your team is not stupid to the world that is going on around them.

Closing Thoughts

So, as you can tell, I am pretty bearish on the next few months, for most all businesses.   As is the public stock market with stocks down around 30% in the last few weeks.  So, take the hint:  it’s time to strap on your mud boots, as it is going to be quite the long and arduous slog getting through this very difficult period.  And, if there is one most important nugget to leave you with—the longer it takes you embrace this grim reality and make the tough decisions or immediately cut expenses, the shorter the runway you are leaving yourself on the backend.  Don’t wait too much longer, as you don’t want to deplete whatever minimal cash reserves you are currently sitting on.  I am not being an alarmist, as that is not my style; I am simply being a realistic based on past first-hand experience.  Good luck to us all!


For future posts, you can follow me on Twitter at: @georgedeeb.

How to Strategically Generate Search Engine Traffic

It's easy for a newcomer to the world of search engine marketing to assume that the search engines (e.g., Google, Microsoft) are all the same and that clicks from them all behave in the same ways. In order to optimize your efforts, you need to know the differences between Google and Microsoft, their search engines and shopping engines, mobile vs. desktop and much more. Learn about what you're doing wrong and how to do it right.

Read the rest of this post in Entrepreneur, which I guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb.

Lesson #322: Need Venture Capital? Take Your Company Public in Canada!

I was recently introduced to George Khalife, a Chicago-based Vice President at the Toronto Stock Exchange.  In Canada, there are two exchanges; the TSX which is the senior exchange suited for later stage, more established businesses and the TSX Venture Exchange (TSXV) which allows earlier-stage companies to raise public capital--for companies that otherwise would be too early stage to go public in the United States and are typically more dependent on traditional private market financings funded by venture capitalists.  It was an eye-opening conversation, that I didn't even think was possible, and I wanted to share those learnings with all of you.

TARGET COMPANIES

The Venture Exchange is targeting companies with $5MM-$50MM in revenues, with valuations of $5MM-$50MM, that are trying to raise $5MM-$25MM in capital.  Companies can be in any industry (although many are in the technology industry) and the business can be headquartered anywhere.  If that sounds like your business, keep reading.

HOW IT TYPICALLY WORKS (on the TSX Venture Exchange)

The most common way to go public on the TSX Venture Exchange is through a Capital Pool Company (or CPC). This is a unique listing vehicle which introduces investors with financial market experience to entrepreneurs whose companies require strategic capital. Unlike a traditional IPO, the CPC enables seasoned directors to set up a public shell company with no assets other than cash.  The CPC then uses the funds to seek out an investment opportunity - and once the operating company has been acquired and meets the listing requirements, its shares begin trading regularly on the Venture Exchange.  Here is an example typical structure of the ownership of the company after going public.

THE PROCESS YOU WOULD FOLLOW

If you are a company in the Midwest U.S. doing at least $5M in revenue and are interested to learn more about raising public capital, get in touch with George Khalife at the TSX who can help walk you through the process in more detail (email provided below).  He will likely set up an intro call to learn more about your business and figure out from there the best course of action - this might involve you sending an investor pitch deck which George would review and assess which introductions to the investment community make the most sense based on your company’s profile.

If approved, your pitch will get circulated to potential investors (the founders of the CPCs described above).  If any of them like your business, those CPC founders will act like your investment banker to do all the work in helping to get your funds raised through their public shell company.  It would typically require a day or two of investor meetings in Toronto, and the process from start to finish is around 3-4 months in length.  The total cost to the issuer (your business) would be $100K-$500K depending on the deal size, which would be deducted from the funds raised in the round.  All monies raised can be in US Dollars.

THE ADVANTAGES

The advantages here are that this is a creative way for early-stage businesses in the U.S. to raise capital, especially if they are having trouble getting the attention of the U.S. venture capital firms.  And, once you are public, raising your 2nd and 3rd rounds, graduating from TSXV to TSX, are materially easier than trying to "pound the pavement" for new venture capital investors.

The important factors to focus on is the “why” of raising public capital - reasons like; (1) access non-dilutive growth capital to execute against strategic growth plans, (2) improve company profile from both a community and customer perspective, (3) ability to make the right acquisitions by using shares as currency, and (4) added credibility that comes from being a publicly-listed entity, etc. 

THE DISADVANTAGES

The disadvantages here are that now you are a publicly traded company.  Your financials will need to be filed quarterly and they will be openly visible to all your competitors.  And, the costs of the financing are materially higher than doing a private round with a venture capital firm.  But, maybe you don't care, because you ultimately were able to raise capital that you otherwise could not have raised.

KEY CONSIDERATIONS

Going public is a major milestone for any company and is a decision that requires careful consideration and advice. To start, ask yourself the following questions when thinking about listing:

● Does your management team have expertise in your industry sector and experience running a publicly-traded company?
● Is your management team committed to the implementation of effective corporate governance measures?
● Does your company have an attractive track record or a product or service that has a readily identifiable market / significant growth potential?
● Have your management team and board of directors invested their own capital in the company?
● Has your company developed the appropriate internal controls that are needed to meet financial reporting requirements?

If you have answered yes to the above questions, you should be a viable candidate. It’s certainly not the best fit for every company, but it is surely a right fit for some - and as founders, it’s important to consider all the financing options on the menu before making a definite decision of which path to take.

CLOSING THOUGHTS

Anyway, I thought this was unique and worth sharing as a potential funding path for you.  Thanks George for introducing the TSX Venture Exchange to me (and our readers).  If anybody desires to reach out to George, feel free to email him at george.khalife @tmx.com.


For future posts, please follow me on Twitter at: @georgedeeb.