It was September 11th and my plane landed early a.m. in Houston, TX for my business trip. It was a little ahead of schedule. The airport was strangely slow. "Well Houston isn't really a hub", I thought. I exited the plane and walked out into a completely empty waiting room. All the airport employees were crowded around a TV showing a skyscraper in flames. "Oh, a skyscraper fire," was my thought. "I hope everyone will be okay." The taxi line was empty. I jumped into a cab. The cabbie turned to me and said, "oh, what city were you trying to get to?". I was completely puzzled. "Houston, I'm in Houston", I said. He paused and then his eyes opened wide. "Oh, you haven't heard. Planes are flying into the World Trade Center. All planes were ordered to land at the nearest airport. You're lucky you made it to your destination."
The World Trade Center?... That's New York... That's our largest market! This was my first real experience being Blind Sided when you're actually executing a startup business.
It really wasn't fair. We were $43 million into our startup funding. We'd identified our markets, built our products and we were gaining traction. We'd moved up the food chain from small businesses to regional companies and we were working on some national brands. But New York was our largest market and one we'd invested a lot of resources into. For 6 months we had no business coming out of New York at all after 9/11. Heck, we didn't even know if our employees there were buried under rubble that first week (fortunately they weren't).
I wish I could say that was the only time my business had been blindsided. Flash forward 8 years. I was working at a different company. We'd sell RFID equipment into large hotels, resorts and casinos. It's the kind of deals where you work on some pilots and then you get roll outs. The roll outs expand your business in waves. We were just about to "ride" a wave. This coming roll out was going to double plus our revenues for the year. Then, the "great recession" hit. Hospitality was especially hard hit. Properties say occupancy rates dropped as much as 80 percent. All of our clients froze capital spending. All clients at once said "stand by indefinitely until we figure out what's happening". The only guys buying at the time were Indian Gaming Casinos. Those clients saved our business. But it was a fluke that we had them. They never were really our target market.
So for all you out there planning your startups, fund raising, executing your plans and striding forward - plan for being blind sided.
1) Have a slush fund or line of credit. When business suddenly dies fast then you need cash to plug the hole. This means you need a minimum reserve of cash and/or untapped line of credit. A combination of both is ideal. You have to call this your "D Day" money. It's not to be touched - ever. There is no warning when major environmental issues occur - terrorism, economic turmoil, natural disaster, etc. It will just happen.
2) Get properly insured. Too many companies hold liability and workers comp insurance only. You can get insurance for just about anything else you can think of. It can address all the major issues. Also, consider getting insurance for business disruption. This is particularly true for bricks and mortar kinds of businesses. If a building burns down you can go out of business from the cash flow disruption alone. Get properly insured.
3) Don't put all your eggs in one market "basket". Be careful on focusing too much on just one geography, industry, major client, etc. If 60 percent or more of your revenue comes from just one market you are very vulnerable to down turn.
4) Have a down turn plan in hand. The best way to prepare for a down turn is to have a plan in place ahead of time. You should work with finance to determine financial criteria in which you cut costs. You should work with operations to determine which personnel would be cut if your business drops. When you cut payroll do it fast and do it deep (as many upfront as you dare). You should work with everyone to determine the order of priority for paying vendors because you will have to pick and choose who gets paid how much and when. No one will get paid in full and on time.
I hope we continue to see some smooth sailing overall in the economy but between the designs of man and the acts of God we will see future disruptions. Do yourself a favor and don't get blindsided.
This article is dedicated to Jon Ecker, Patrick Blair, David Hong and Richard Rodriguez for working with me in the trenches during the crazy times post 9/11. Thank you all for your dedication.