By Piotr Sliwa, Investment Director 3TS Capital Partners
As investors, we have the privileged position of supporting the entrepreneurial leaders of the growth companies in their endeavors and pursuits. From the board level, we observe the struggles and extend a helping hand when possible. As co-shareholders, we stick around in good and bad times, and usually, both of these periods teach us valuable lessons. 2020 was no different in this respect. Across the portfolio, we have seen stellar growth but also rise in new challenges. Thanks to the agility of the teams, the companies sourced and adopted new best practices that allowed them to weather the storm. Based on what we have seen so far, I concluded that some of the old truths still hold and will likely remain even more important in the years to come.
Empathy and relationship with clients go a long way
In everything a company does, the focus should be on its customers. In the end, it was set up to serve their needs. In both good and bad times, it has to ensure they receive what they paid for. Starting from the onboarding through various engagement models to renewal discussions, the team always has to be on top of the communication via all channels to ensure they give the clients all the support they deserve.
The COVID crisis has shown us that in these extremely difficult times companies and their customers are ready to go the extra mile to develop various short-term adjustments in order to make the relationship work in the long-term. Times like these allow strengthening the relationship between companies and their clients.
A lot of the issues we’ve seen during this crisis revolved, not surprisingly, around cash collection. Solutions were creative. Companies often agreed on win-win arrangements that included a mix of payment terms extensions or discounts in return for tweaking other terms of the contract, such as duration, level of support, modules, etc. The only way these solutions could have been developed was through empathetic communication that allowed everyone involved to understand the gist of the problem and work around it. This was the effect of close relationships that our companies and their clients have developed and enjoyed over the years.
Never run out of money
Having said that, every CEO has one key task he needs to put on top of his agenda every day: don’t run out of money. Especially in times of crisis, companies need to ensure their short- to mid-term viability by extending the runway. The more complex the organization becomes, the more complex this gets. It is therefore pivotal to understand at all times where the company makes money and where it invests into the future. An outstanding information management system and analytics should give a good understanding of the business’ efficiency both on the cost and on the revenue side. This will provide the levers to pull when necessary. Some of the old truths still hold: do not underestimate the power of cash flows, prepayments, or early cash collection, better cut more costs than necessary and then adjust later.
On the other hand, some of our companies grew their teams during COVID as their recruiters remained vigilant about what was happening in the marketplace. Having clarity on the business efficiency gives a better overview in terms what risks can be taken. Only then one can take these risks at the time everyone else is deleveraging. These may be some great risk-reward opportunities.
Explore new ways if the old ones do not work
Some industries were hit harder by the crisis than others. It is difficult to foresee what long-term impact the change in customer behavior will have on sectors such as travel, leisure, and commercial real estate, however one can assume that the impact will stay with these industries even longer term. The drastic reduction in revenue and increase in booking cancellations have resulted in many companies turning away from their core products towards other similar verticals that allowed them to create new sources of cash flow.
The creativity of some of the teams impressed us deeply, as they came up with solutions to problems they did not anticipate, selected what to focus on, developed and deployed an implementation plan, and executed it within weeks. The times of crisis call for open-mindedness and creative search for opportunities that one did not consider in the past. The faster a company can adapt, the better.
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