We’ve been living with the finance crisis for some time now. When I think of the impact on mid-sized companies like ECT, it seems to me there is indeed a positive side to this crisis: It’s reaffirmed my belief in sound business practices.
That’s what I can say from the perspective of my company and my customers. Before the crisis, the banks threw money at us, offering us overdrafts we didn’t need and encouraging management to “invest in growth.” Financial advisors and venture capitalists told me my (profitable, cash-flow positive) business was stagnating. I should embrace deficit spending which would lead to an increase in sales. And of course the additional sales would allow us to pay back our debts – later. Even my non-executive directors prodded me to be less “conservative.”
Credit facilities were cheap and there wasn’t even commitment interest, so of course we accepted large credit lines from each of our three banks. After all, we didn’t have to use them.
But if you have so much credit, before you know it, you start to do business differently. Some competitors were offering customers financing, so we started to offer financing. Other competitors allowed customers to pay for a project upon final approval, even if it took several years. Again, we followed suit.
When placing orders with our suppliers, we paid them in advance to get better purchase prices. Actually, this often saved us a considerable amount of money, so it wasn’t such a bad deal.
We encountered carriers who wanted to experiment with new services and asked us to do “preliminary” development. Well, even if we didn’t quite understand how the carrier would ever make money with this service, we invested in the development anyway.
We Had to Live Within Our Means
As I said all this happened slowly and soundlessly until one day in 2007, I suddenly realized that we were pushing a sizable overdraft uphill. Remember Sisyphus? That’s how I began to feel. I decided – come what may – we had to live within our means. In hindsight, I was really lucky that I saw the light back in 2007: we all know how tight money suddenly became in the following two years.
Like anybody on a diet, we had to use iron willpower, but in 2008 we were able to eliminate our debt and despite all our reduced spending, 2009 was one of the most successful years in the history of our company.
What’s changed? What triggered my decision? That’s a story for my next blog entry.