- Alvaka Networks’ Oli Thordarson made a plan, crunched some data and doubled down on his firm’s most profitable customers
- Tehama’s Paul Vallée zeroed in on, and spun out, a strong business concept that turned out to be on point
- BillingPlatform’s Dennis Wall stuck to his guns on sticking with a geographically diverse workforce, a decision that’s paid off
The current global economic instability is forcing CFOs and other business leaders to recalibrate their 2020 strategic plans. It’s a drill familiar to those who managed through the Great Recession more than a decade ago, the Sept. 11, 2001, terrorist attacks and the dotcom crash shortly after the turn of the century.
The lesson: Our best laid plans can be overturned in the blink of an eye.
Brainyard reached out to companies that provide business and technology consulting and services and asked, What strategic decision did you made recently with an eye toward growth, and how has it served you?
Three stories resonate and provide guidance for executives looking to not only manage the current crisis, but come out of it stronger and poised for growth.
Alvaka Networks Dusts off Great Recession Playbook
Business leaders who survived the Great Recession of 2008, which roiled the economy to an extent not seen since the Great Depression, are reviving the strategies that got them through.
As the COVID-19 virus spread in March, Oli Thordarson had flashbacks to 2008. Thordarson is CEO of Alvaka Networks, a provider of managed IT and security services based in Irvine, Calif., that counts Fandango and Shimano among its clients.
“I was hamstrung with a sense of indecisiveness and feeling uncharacteristically undirected,” says Thordarson. No one knew how deep the recession would go, how long it would last or the impact it would have on his company’s clients and hence his company.
Shortly after it became evident a recession was imminent, he came up with three budget plans aligned with possible economic scenarios.
In the case of a mild recession, Plan 1 was to cut 10% from Alvaka’s operating budget. If the recession became more serious and prolonged, he would escalate with a 25% cut. In the worst-case scenario, an “Armageddon-type recession,” Thordarson would slash Alvaka’s operating budget by 50%.
The amounts were somewhat arbitrary, but they struck him as a reasonable framework.
“In these three scenarios, I had a good idea of where we would cut expenses and how we would realign or cut staffing,” he says. “Although it was fairly high level, I had an appropriate amount of specificity to know that the plans were sound. It took me until 2:30 in the morning to complete the task, but I went home with peace of mind, and I slept like a baby that night and for the rest of the recession.”
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In 2008, Thordarson needed to implement only the first-level cuts, which preserved staffing and service levels.
Fast-forward to last month, when the World Health Organization declared COVID-19 a pandemic and many businesses had to either shut down or get creative about how they operate. For now, Thordarson has assessed the risk profile of his clients as low.
“My clients fortunately have strong balance sheets, and they are not in highly impacted industries,” he says.
How did he come up with that assessment? Data. Like many service companies, Alvaka has years’ worth of work orders and deep insights into its customers’ businesses. In fact, among Alvaka’s Top 12 clients, several will likely expand their spending in response to unfolding conditions.
“One client we know will get hit hard, as they were in the last recession, others less so,” he says. “We can estimate a possible 10% hit on our top line by clients at risk, but we are also confident we can replace that business with more profitable revenue. We are concerned, though, about slower payments.”
Alvaka maintains a steady flow of leads, and while few companies are likely to change providers midstream, a flood of new at-home workers along with a spike in ransomware attempts based on COVID-19 scams are a selling point for its security offering.
Professional services firms should A, mine the data they have on customers to see which ones might benefit from proactive outreach, including to head off slow payments where possible. And B, not assume they can’t pick up new business. Plenty of companies are worried about customers invoking force majeure clauses or need help figuring out where to find 10% or 25% savings; lawyers and accountants should be reaching out to current and potential clients while being smart about their marketing messages.
Venture Cash Provides Tehama Breathing Room
Late last year, Paul Vallée, founder and CEO of SaaS startup Tehama, made a decision that’s paying off now. In September, Vallée sold a majority stake of his Ottawa IT and managed database services company, Pythian, to New York-based private equity firm Mill Point Capital. The proceeds helped finance Tehama, a spinoff aimed at providing secure “virtual office spaces” for remote workers.
Talk about right place, right time.
Pythian was early in its embrace of remote work, which resulted in a service delivery team that was, for the most part, working from home anywhere in the world.
Vallée, a self-described serial entrepreneur, said that caused security and compliance challenges for Pythian, given its focus on customer databases. That drove development of a service delivery platform that enabled its home workers to meet compliance requirements, including SOC 2 Type II, FIPS and HIPAA. The technology, originally called Adminscope, later became a division within Pythian, renamed as Tehama.
While Pythian was selling its services to enterprises, Tehama was trying to sell its underlying technology to other service providers.
“I decided that the companies would be healthier and happier if they had their own independent businesses and their own independent vision,” Vallée says. “The challenge that we had with the platform living inside Pythian, of course, is that service providers would see us not as a platform for their delivery but as a competitor’s platform for their delivery.”
As part of its purchase of Pythian, Mill Point agreed to continue licensing Tehama’s technology. Meanwhile, Tehama could operate as a venture-backed company and grow by offering its service in a SaaS model. Spinning Tehama out also helped alleviate the risk of Pythian having a not-yet-profitable emerging business on its books.
For companies with IP that meets needs generated by COVID-19, don’t dismiss the possibility of a carve out. PE firms have cash — some $1.5 trillion at the close of 2019 — and consultants that help with spin-offs and M&A likely have time on their hands.
How to decide?
Vallée says he could have kept Tehama’s core software-based secure workspace within Pythian and leveraged it to grow the MSP business. But he says that setup was “a turducken,” referring to the holiday entree of a chicken and a duck stuffed into a turkey.
While seeking investors to recapitalize both businesses, Vallee learned that few have an appetite for turducken.
“There is a liquid market for turkeys and for chickens and for ducks, but if you happen to have a turducken, it might be a hard thing to get an investor,” he said. “Different funds have different pools of money with different investment theses.”
As a mature business with predictable cash flow poised for growth, Mill Point found Pythian attractive. Tehama, less so.
“Typically, a growth-oriented private equity investor is not the same investor that would be interested in Tehama, but a venture capital investor would be,” he said. “And so, from an access-to-capital problem, we were creating challenges by merging the two companies.”
Mill Point acquired his controlling interest, and Vallée raised seed money for Tehama, a 50-person company, from venture capital investors. Vallée said he was fortunate to have two attractive business models that attracted financing.
“Let’s face it, it’s a great time to be in cloud databases, and it’s a great time to be in remote work platforms,” he said.
Executives who see similar potential should think seriously about splitting functional components into individual companies that investors can readily understand and value.
Keys to success with a carve-out include figuring out which funding option is right; inventorying assets; setting up transaction service agreements; due diligence around security risk; and nailing the trinity of culture, strategy and price. But the payoff can be substantial.
Vallée says he made the right decision by spinning out Tehama.
“The companies are thriving independently,” he said. “And the personal pleasure that I take from my work efforts has been massively improved since I stopped working on the transaction and started working on just one company’s business strategy.”
BillingPlatform Stayed the Offshore Course
A month ago, Dennis Wall was cautiously optimistic that the majority of CFOs planned to increase or at least sustain investments in financial products and services like those his company offers. Backed by a survey of 300 corporate finance leaders across industries, that confidence came with recognition that the economy was overdue for a downturn. It also wasn’t lost on Wall that headwinds were already kicking up.
Wall, who is co-founder and CEO of SaaS-based billing software provider BillingPlatform, had just published the results of a survey the company had commissioned. At the time, 50% of respondent planned to spend more on financial software in 2020, with 15% looking to keep investment the same. While 35% saw reductions, only 5% said cuts would be significant.
COVID-19 wasn’t even on respondents’ radar when the survey rolled out in December. But this shows how quickly assumptions can unravel, even for CFOs plotting fiscal budgets with the most conservative, worst-case scenarios in mind.
How to Manage a Remote Workforce
|Three pillars ensure effective, cohesive teams no matter where employees work|
|Strong Culture||Productivity Tools||Communication|
|Use savings on real estate to bring employees together at least annually. There’s no substitute for being together in the same room.||Everyone should use the same project management, time tracking and other mission-specific systems. Cloud is king here.||Use video for most or all meetings. Once people adapt, they’ll appreciate seeing colleagues. And being on camera discourages multitasking.|
|When hiring, prioritize soft skills and cultural fit over technical knowledge that can be taught.||Real-time chat is critical to keep the volume of email under control.||When employees are in diverse time zones, consider a rotating meeting schedule so that one group is not always disadvantaged. And set guidelines. No one should have to attend a standing meeting between 10 p.m. and 7 a.m.|
|Be very transparent about your company’s values and culture and make sure employees actively buy in.||Consider regular stand ups, where people share what they did the day prior, outline tasks they plan to complete that day and review overall team goals. While not a tool per se, they help avoid duplication of effort.|
“I still feel positive and optimistic about what’s going to happen through the course of this year,” Wall said during a March 9 interview to discuss the newly published report.
That discussion took place in late afternoon, just after the Dow Jones Industrial Average had posted its steepest single-day decline ever. The index plummeted 2,014 points when the World Health Organization raised alarm bells upping the severity of COVID-19 — but still two days before declaring it a pandemic.
Wall acknowledged there would be fallout, but to what extent? It was too soon to predict.
“In the near term, we’re still seeing a lot of positive business flow,” he said. “We have the deals that are in flight that are closing this quarter, and that has shown no signs of slowing down.”
A week later, after the enormity of COVID-19 became abundantly clear, we reconnected with Wall and asked if the pipeline for bookings was set to take a hit.
“Yeah, I think it will,” he acknowledged. “Realistically, taking a look at what’s going on, we’re starting to feel it. I’m sure people will continue to call timeout to assess what’s going on. … We’re in relatively good shape now, and I feel comfortable about our ability to weather the storm. It’s just a question of whether that storm is one, two or four quarters.”
That’s not hubris. Rather, he says decisions that the company made will give BillingPlatform cover. One choice in particular seems particularly prescient.
A year or so ago, the company’s board of directors debated whether to shift away from using offshore development-and-support employees based in the Philippines and Eastern Europe and instead hire people closer to its headquarters in Atlanta, an office in Denver or other U.S. locations.
The debate over whether to continue with its offshore workforce or to hire onshore despite a tight talent market was initiated by members of BillingPlatform’s board, who suggested that using U.S. nationals, while more expensive, would result in better communication and allow processes to move faster.
Wall was adamant that who the company hired was more important than where they worked, particularly in roles that require specialized skills.
“I felt very strongly about the fact that we have a compelling offshore team, and we have really effective collaboration,” he said. “So, to continue to invest in that was, at least for us, a very low risk.”
Wall gets that some companies have set up shop offshore and seen poor results. He credits his success to embracing a virtual work culture, being diligent about vetting and holding out for the best talent available for any role, especially in leadership and management positions. Getting that wrong can be costly.
“When you’re looking for leadership, it sometimes takes a while,” he says. “But we’ve been able to find talent in a shorter period of time than some of our peers or those companies that are keeping a very narrow focus on talent acquisition in very specific geographies.”
Wall says BillingPlatform seeks talent like most companies — recruiting firms, LinkedIn and referrals — and is very diligent in its interviewing process. Each candidate must meet with at least six people.
“We not only look at things from a skill perspective, but a cultural and personal fit as well,” Wall said. “I think you would find great consistency with respect to everyone understanding and being committed to our mission, which is a ‘GSD’ kind of attitude regardless of actual role and being able to leave egos at the door.”
Effective collaboration among a very dispersed team is also a critical factor.
“Many of our meetings — not only at the management level, but at a team level — are done not just on the phone but with video,” Wall said. “As CEO, I give a monthly update to the company to let them know what’s happening, where we’re having success and recognizing employee contributions. And we do have both team and company gatherings on a fairly regular basis so that we can still have that personal connection.”
Wall persuaded his board that the company should stay the course versus either hiring onshore or using contractors. Wall sees it as an ideal balance. The company has lower labor costs, a culture of remote work that has served them well and the benefits of dedicated employees versus contractors.
The talent market was competitive before COVID-19, and eventually it will be so again. Wall’s advice for companies able to start with a clean, or semi-clean, slate is to worry less about geographic location and more about finding people who can work independently and adapt quickly.
And don’t get hung up on office face time.
“We’re fortunate in that we have run the organization relatively lean, and we are able to leverage offshore effectively,” he says. “It has been part of our DNA from Day 1, so it’s not a big transition.”
Jeff Schwartz is a Brainyard editor-at-large, covering technology and trends across different industry sectors. He has covered all aspects of technology and its impact on business for three decades as an editor and writer for a wide range of publications. Currently he’s a freelance writer. In addition to Brainyard, he contributes to Channel Futures and SD Times, among other outlets.