Hayden | February 6th, 2013
This FounderTalk – The Real Story post was written by Nick Mehta. Nick is an Executive-in-Residence at Accel Partners and advises several startups. He was most recently the CEO of cloud archiving provider LiveOffice through its acquisition by Symantec. He was previously an executive at VERITAS Software. Nick followed the typical path into enterprise software by starting out selling custom-built golf clubs over the Web.
“There cannot be a crisis next week. My schedule is already full.”
- Henry Kissinger
It’s hard to pinpoint the moment when you know you’re in a crisis. This is especially true in a startup – where fires become as familiar as your morning Starbucks order.
But for me, I knew things were different at my last startup LiveOffice one morning in early 2009. My Controller and I were in her office and went through the roof with joy when we discovered ADP didn’t deduct money from our bank account until a few days after our company payroll date. We’d make at least one more payroll. Hallelujah!
This wasn’t supposed to happen. It was indeed the peak of the financial crisis and the world was pretty much ending, but we were profitable and growing and our customers were still paying their bills.
But it turned out they would only pay the bills they received.
Rewinding a bit: as a SaaS company, we had our own, homegrown billing system. And billing was very important to us. We had never raised any capital into our company (our investors came in via a secondary sale) so we had a very “thin balance sheet,” which is a nice way to say “we had no money.”
We grew our business from our customers’ payments (old school – I know). And since our customers were timely payers, as long as we sent them invoices, we could count on the cash coming in. Cue the disaster music.
In an effort to get more flexible and predictable about billing, we were migrating to Zuora, the leader in subscription billing software. We were excited to get away from our internal system, which was brittle, tough to maintain and definitely not our core competency.
And while we were in the process of cutting over, we thought we would make some (seemingly) small tweaks to our billing processes to make them easier for our customers to understand and simpler for us to manage. At some point one of my team members ran the plan by me and I approved it – a no brainer, right?
What’s That Blip?
Big mistake. Sometimes in a startup, you have to focus on the big picture; other times, the details really matter. This was the latter. And none of us realized it until we saw cash start to drop.
At first we thought it was a “blip.” Maybe the credit card companies were slow in transferring cash to us since we had new merchant IDs? Maybe a few big customers had slipped payments? Maybe maybe maybe. Well, it turns the “simplification” of our billing policies meant that invoices were being sent out 30 days later than before. Not good when you have a skinny balance sheet.
As I sat in meeting after meeting, day by day, our excuses grew as our cash dropped. And I unsuccessfully tried to pay attention in product strategy discussions and sales meetings while I reflexively glanced at my Blackberry (it was a long time ago!) to see if any new customer payments had come in.
To their credit, one of my investors and Board Members gave me a wake-up call as our cash position looked less like a runway at an airport and more like a plank on ship. He said I needed to make cash my number 1, 2, 3 and only focus until were out of the crisis.
“But I have lots of meetings scheduled and our business needs to go on,” I responded. In some ways, I wanted to deny the urgency of the situation and let the business continue as normal. But as the words left my mouth, I realized that none of those meetings mattered if our money ran out.
So I cleared my calendar and went from CEO to CCO (Chief Cash Officer).
Our investors flew one of their associates down to help us through the challenge and to add to the drama, he was an ex-Navy Seal (and a surprisingly nice and low-key guy). Zero Dark Thirty had nothing on us.
And in a stroke of luck, we were able to convince our ex-Controller (who had the ship running tightly for years before the changes) to come back and get our systems going again. She had been commuting long-distance and was excited to be home with her family, but returned because she knew we needed her.
Thanks to a heroic team effort, we made it. Barely. And we went on to grow rapidly as the market leader in our category, culminating in a very successful acquisition by Symantec in 2012. Along the way, billing became a huge strength of our company.
But during those few months in 2009, it felt like that amusement park ride where you fall from the sky and almost touch the water. And then you throw up.
So What Did I Learn?
Hopefully I never have a crisis like that again, but if I did, here’s what I’d consider:
- Clear the Calendar. It’s easy to get stuck in your routine of product, customers, employees, etc. And the bigger you get, the more pulls you’ll have on your time. But when you’re in a crisis, you need to break your routine and free up the time to deal with the day’s urgency. Literally cancel all of your meetings and start from a fresh calendar.
- Keep the Crisis Top of Mind. In the same vein, it’s important to keep the crisis in front of you at all times. For me, this meant printing out our (very ugly) daily cash forecast and keeping it with me constantly. I think I literally carried it in my pocket for weeks.
- Assumptions Make a *Something* Out of All of Us. When we cut over to the new billing system, we switched to all-email invoice delivery. Since we had been around for some time, we previously were mailing invoices. But we never double-checked to make sure we had email addresses for every legacy customer. It turned out a bunch were missing and hence they weren’t getting bills. Sometimes the most obvious things can get you.
- Go to the Mattresses. Ben Horowitiz has a great post on war-time versus peace-time CEOs. And to continue the Mafia analogy, sometimes you have to decide to go to war (or the “mattresses” as they say in The Godfather) and switch out of your normal CEO personae. This might mean being tougher or more scrutinizing than usual. But you do this because your company needs it.
- Call in the Wolf. Sometimes bringing in an outsider can help a lot. Whether it’s our ex-Controller or Navy Seal, in my case, or Harvey Keitel’s “Wolf” character in Pulp Fiction, figure out if there’s an expert that can come in and be there side-by-side with you through the drama.
- Beg. Your real friends will come to help you when you ask. Zuora turned out to become an amazing partner for our company. I called Tien Tzuo, the CEO of Zuora, and caught him in the car on the highway. He understood the direness of our situation and immediately sent one of his top engineers to our office to work with our team until resolution while his entire product group was supporting us behind the scenes. Our investors pitched in with the aforementioned Seal. Our founders saved us with bridge funding. Our vendors were very understanding. We learned how lucky we were in our time of greatest need.
- Rally the Team. You can’t do it alone. In a real crisis, it’s important to be transparent and make sure your team helps where possible. You don’t want to distract them (especially if you want them running the rest of the business so you can focus on the crisis). But for me, I wanted my leaders to learn how important the next few months of cash were. So I had them all sit with the billing team for several evenings and help send out bills. While we fat-fingered through invoices, we learned how complex our procedures were (allowing us to fix them down the line) and also internalized the severity of our cash situation.
It’s easy to take this advice too far and treat every situation like a crisis and see war in every time of peace. But when real disaster strikes, how you respond makes all the difference.
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