Focus on your existing customer base, communication is the Golden Rule, be ruthless in controlling expenses and remember that cash is survival.
Those are some of the words of wisdom for startups and growth-stage businesses in the technology sector now grappling with the impacts of the COVID-19 pandemic. Four experts on a recent webinar, organized by the MaRS Discovery District and sponsored by Roynat and Scotiabank, aimed to provide practical, actionable advice to entrepreneurs as the global economy slows to a near-halt.
The webinar is one example of the activities arising from Scotiabank’s recent partnership with MaRS. With a focus on research, financing and education, the collaboration, announced in March, aims to support the growing community of Canadian entrepreneurs.
With much of Canada’s economic activity on hold, getting through the crisis will be a challenge for many businesses, especially small and medium-sized ones. Expanding the customer base during this period will be difficult, so businesses would be better off focusing their attention on existing clients, said Margaret Wu, Vice President of Investment at Georgian Partners, a Toronto-based growth equity firm that invests in enterprise software startups.
“In a downturn, it's often easier to cross sell or expand with existing customers where you already have that relationship,” she said during the webinar. “What we’ve been hearing from the sales community is that net new is extremely difficult right now and most have already shifted their focus to existing customers.”
David Rozin, Vice President & Head of Roynat Capital’s Technology & Innovation Banking group, an arm of Scotiabank’s Business Banking unit, agreed, and emphasized the need to prioritize communication with those existing customers.
“The initial focus is really on the existing install base of customers, the folks that are taking advantage of your products and services,” Rozin said. “It's really important to check in with them. First and foremost, you'd want to understand how they’ve been impacted, but also get a sense of where the product or service that you're selling fits in with what is critical in their organization.”
Identify a critical problem
"Getting access to higher levels in a customer or potential-customer organization may actually be easier during the crisis because people are very much trying to focus on the big strategic questions," said Mark Hyland, Senior Advisor of Enterprise at MaRS.
“If you can identify a critical problem that you can solve then, perhaps counterintuitively, you can actually get access right now to some key decision makers that beforehand you might not have been able to,” he said.
When customers are struggling, it’s inevitable that some will look to defer payments or get concessions that would reduce their costs. Wu said it’s important to go into those discussions with a “concession strategy,” with a view to keeping your revenues as intact as possible.
“Focus on ways to increase the value of your offering to customers to try and give them more for what they already pay rather than giving a discount,” she said.
For example, Wu suggests looking at extra team capacity that could be packaged to create a bonus service offering, or any unsold inventory that can be given as a bonus at little marginal cost to the business.
“The idea is to continue trying to make concessions as a two-way street, so that you fight hard for a fair exchange,” she said. “You want to reward behaviour that benefits you in the long run, because panic discounts can be detrimental to the pricing integrity.”
"Maintaining a solid cash position is key for a growth-stage business so that it can emerge from a crisis in a healthy position to continue its growth trajectory – and survive. At the end of the day, cash is king," Rozin said.
“This current time that we're in first and foremost is a balance sheet exercise,” he said. “Until we get into recovery, and even out of recovery, what you want to do is keep things steady, keep yourself as stable as you can, keep the lights on in your existing customer base and still have some capital so that you can accelerate out on the other side.”
Raising cash in the current environment can be challenging, but not impossible. Businesses can look into the various support programs implemented by the federal government, and there is still capital available in the marketplace, though less than there was before and under different conditions.
“If you are going to the market for funding and looking for equity investment, be ready that the world you lived in five weeks ago, six weeks ago is gone. It does not exist,” Rozin said. “The valuations, the terms of the deal are completely different now. We have turned back the clock significantly so check your egos at the door. If you found a partner that's ready to put some capital in, be grateful that they’re there.”
Ultimately, trimming costs wherever possible should be the first exercise, the experts said.
“The thing you can control more than anything else is cost, and so the better you have a handle on controlling costs the better you're able to determine your own destiny,” Rozin said. “Get into being just ruthless with the amount of costs that you're going to cut.”
Hyland concurred, saying “to finish first, you have to first finish,” urging business to “make those critical decisions to keep cash in the door.” But he also had some optimism for what comes after the crisis for businesses that do the right things now.
“I think there is an opportunity for strong companies who are able to get through this and who have the strength and the value proposition to actually prepare themselves to do better as things slowly get back to normal,” he said. “I think there are opportunities in something like this that really nimble companies will be able to take advantage of if they really paid close attention to their customers.”
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