For the last couple of weeks I’ve been pretty quiet on the blog. If you’re wondering why, read on:
In the start-up business, people are always telling each other what it is that you need most: co-founders, a minimum viable product, you’ve got to be agile, and who knows what else.
But an overlooked factor is that of a solid network of long time friends.
The value of such a network may not be readily apparent, it’s not going to show up on your balance sheet, when you get an investment nobody will do due diligence on your business related friendships. You won’t be able to borrow against it, and you can’t sell it. But it matters, and sometimes it matters a whole lot. How much it matters is something that I think I lost track of over the years, but recently I’ve had a really nice opportunity to re-learn the value of friendship.
Early March I got hit with a tax bill. That’s nothing special by itself, but this one was special in that it came 8 weeks earlier than I expected it, and that it was quite a bit higher than anticipated.
In 2009 we had pretty decent revenues, in 2010 I used the proceeds to buy back the last block of outstanding shares in ww.com, banking on my ability to breathe new life into the business in time for the taxes to be paid.
That was a calculated risk on my part, and so far those have paid off.
But just like playing the lottery, if you play long enough, you end up losing, and in this case I misjudged two factors. The first was how fast I could recover the business, the second how much it would cost to do so. All of the money that it made on top of what it made before went into the restructuring and rebuilding of the site. So when all was said and done, it looked a lot better and worked a lot better, but there wasn’t any money left over.
What money we made went into salaries, debt reduction and that site rebuild, so at the end of all that there was not a whole lot left to re-create the reserves that I had raided in order to buy back the stock.
When that tax bill arrived it was the closest I’ve come to thinking ‘oops…’ as long as I’ve been doing business.
It wasn’t even a huge risk in a monetary sense, it was just the combination of all these little factors skewing things ‘just so’ to make the risk a real one.
Now, I could have borrowed my way out of this but I have a very bad feeling about that. If you borrow to solve your problems you don’t actually solve your problems, you just defer them and they’ll come back bigger.
So, instead, I decided to see how much work I could attract in the short term to plug the hole.
While driving to some meeting, I started calling people on my ‘list of friends’. By the time I’d reached the ‘L’ I’d had several offers to borrow me the money, interest free, for as long as needed, a whole bunch of job offers (tough, I’m not exactly where the action is in this country) and more (remote) contract work than I could reasonably expect to do in a single lifetime.
I picked two of those (one, a very high paying short term one, the other, a longer term one that pays less, but is right up my alley, polishing a very large C code base) and got to work.
Now, 10 weeks later we’re back in the ‘black’, the problems are under control and it looks as though we’ve weathered the crisis.
At the low point we had less than 50 euros in all corporate accounts combined! But we never went below ‘0’, we paid all our creditors in the agreed upon time and did not have to borrow any money.
In the midst of all this, on a Saturday night, right in the middle of a bunch of work the power supply on my main dev box blew up. With some more help of my friends it was up and running again six hours later, in spite of all the stores being closed and me living 300 km from ‘civilization’, so only very little actual time was lost.
Lessons learned in this episode:
- Assets are not liquid
That seems pretty obvious, but it's easy to forget. Ever since ww.com took off cash-on-hand has not been a really big problem and it is very easy to confuse the value of the assets with your ability to solve problems short term which is related to cold hard cash. That value of your assets is a nice figure but it only counts if you can liquidate your assets and if you are either not planning to do so or not able to do so quickly enough then your ability to deal with a short-term setback is diminished sharply. The obvious solution is to be even more conservative than I already am, and to build up a larger cash reserve. I may have to slow down the rate at which I'm paying off a bunch of real estate and to build up a larger cash reserve instead. This is expensive because a reserve savings account will not pay nearly as much as it costs to borrow money on a corporate mortgage. But that little bit of difference in interest will give a lot more stability. - Don't touch that reserve
That's another one that I should have known by now. It's easy to see where this went wrong, I should have *NEVER* touched the reserves in order to facilitate the buy-back. I've been lucky far too long and I figured that I could pull this off, bad bad bad mistake never to be repeated again. The reserves are from now on holy and inviolate. This was a real case of not practicing what you preach because that's one of the first rules of business I try to make newcomers aware of. Reserve your taxes. Don't touch the reserves. Ever. - Do a liquidity planning, even if you don't need one
Make sure you have a really good idea of what's coming down the line so that you can start acting before you actually need to. The sooner you know that trouble is brewing the better you'll be able to respond to it. - Timing is everything
Even if the plan is a reasonable one, if you decide to run it close to the edge, anything that can go wrong will go wrong. And close to the edge there is no room for mistakes or things to not go to plan, so you'd better make sure that your plan is on rails, with no possibility for deviations. Having been lucky in the past is absolutely no guarantee that you will be lucky again in the future, so don't count on your luck to succeed, count on your luck to make a successful thing even better. As soon as you need luck to succeed, you are in a very risky position. - It is good to have friends
Over the years I've met - both online and offline - 100's if not 1000's of people in business and a substantial number of those have become part of my extended circle of friends. Each and every one of those contacts is tied to a person, and that person has the right to bug me night or day if there is something that I can do to help. What I never counted on was that one day I'd have to 'lean the other way', to ask for help. It simply never occurred to me that that day might come, I thought I was beyond having to ask for help. The level of response and the amazing display of generosity and kindness is something that really blew me away, of course I knew I had friends but I never expected a response of this magnitude.
If you’re in business and you do your bit to help out others when needed if and when the time rolls around that you need help it’s great to find out that you get back what you gave.
Over the years I’ve found many occasions to compare running a company to real life things in a series of analogies. A good one that I’ve found compares it to doing a juggling act on a high wire without a net. Now that I stumbled and fell, I find that even though there didn’t seem to be a net, it turns out there actually is one, you just can’t see it until you need it.
So, all is well that ends well, and I’m happy to say that like with every other crisis we got out of this one much stronger than we went in to it. I’d like to take a moment to thank all of my friends, and I’d like to single out LD, JvdE, RW, PvB, CP and Joe, you know who you are.
Thanks a ton for helping me out in a time of need!