Tuesday, September 23, 2008

Financial Crisis and Dot Com Ghosts

Strategic Communications Group (Strategic) was flying high in 2000.

Sales had skyrocketed during the past 36 months, new business opportunities continued to flow and staff size had swelled from three to nearly 40. We made plans to expand our operations to emerging technology markets in Philadelphia, Atlanta and Raleigh. The old rules of business – focus on key markets, manage cautiously and grow profitably – no longer applied.

Then came the market correction. Over the course of the next two quarters Strategic had nearly a dozen clients run out of funding and shut down, leaving the agency with several hundred thousand dollars in fees we would never collect.

As a relatively young founder and CEO, I had only managed in an up-market. I hesitated…partly from shock, yet more from ego. There was simply no way something I had worked so hard to build could possibly fail.

It was a board member who corrected my thinking. We cut deep and quickly. Extensive staff layoffs. Elimination of non-core business lines in the area of creative advertising and media planning/buying. An across the board reduction in expenses.

We survived and set upon a path defined by measured (and profitable) growth, pristine financial and operation procedures, and an intense focus on a simple guiding principle – great work for great clients.

I thought of this near-death experience when reading the New York Times article on the fall of Lehman Brothers. It’s a fascinating look at the factors that influenced Lehman’s Richard Fuld Jr.’s decision-making, as compared to John Thain of Merrill Lynch.

Make no mistake, for a small business owner the current financial crisis is incredibly scary. We are making a more concerted effort to talk to our commercial banking partner on an ongoing basis to apprise them of our continued success. And we always keep in mind that the guiding principles of running a sound business remain constant.

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