Wednesday, October 30, 2013

How do We Make New Steve Job Clones ?

Firstly of course we will never be able to recreate Steve Jobs in a clone which would behave as he did and succeed as he did!

However we have some lessons to learn from Apple, Invitrogen, Texas Instruments, Nike, Oracle and so on and so on, the great USA entrepreneurial companies who became corporate giants.

How much of their entrepreneurial spirit they retained is debatable, but they would have had no launch pad to Wall Street without years of being successful, nimble, customer orientated SMEs.

IN the UK and Europe also, many of the  technology companies so successful in the post war period came from the combination of innovation and entrepreneurship : by in large though outside Germany they seem to have waivered and been victims of take overs and mergers such that their soul is lost- the esprit de corps is destroyed, the collective organisational memory slowly erased.

The future of fighting against Samsung and LC, and the loss of manufacturing and design implementation jobs to the far east lies in the educational culture we are building today. Initiatives to expose undergraduates and university researchers to entrepreneurial skills and commericialisation programmes are in place, and the link between research funding and the application in the real world was established almost 30 years ago for the wider range of R&D at universities.

There are some mistakes being made though on both sides of the scale :

To take the last point in the preceding paragraph first - commercially directed research has two fatal flaws - science is a creative, inquisitive phenomenon which may pose some theories but used to follow research by pure interest and intellect: now researchers have to use inordinate energy to tailor the look and content of their work to match potential commercial applications..

Further more many university spin out companies who are IPR capsules are on the one hand an ego trip or rather nerd tourism into capitalism to do more of the research they want to do, just wrapping it up in a further commercial pretty paper. On the other hand they are on a "wing and a prayer" because in fact the analysts who support the investment really don't know enough about the market and the technology to do anything else than really be investing in an emerging "industry" or worse a "buzz word" like proteomics, which investors will buy when clad in graphs and figures.

Industry too has had some major failures in this respect, the biggest I can think of is actually the vast investments made in combinatorial chemistry and high content screening- this all looked great on paper and early lab research however the return on investment was inversely proportional and most companies have moved to a more directed approach in researching disease cause, sites of molecular interaction and "pharmaphore" based chemical entity drug candidates. Then come Pfizer with Viagra and earlier, Leo with Dovonex for psoriasis, both areas poorly provided for in the market and both drugs developed from the side effects of previous entities used as medicines! Alexander Flemming made the greatest discovery of the 20th century in medical science by accident.

On the other hand grandoise  pure research programmes like the human (and other species) genome project have actually destroyed many potential spin out companies by making patenting in some areas harder to achieve by the work being more accessible and more published around.

What is lacking here is the pursuit of excellence as a purely intellectual exercise: in fact being able to define that you are pursuing excellence should actually be an exclusion criteria - basically you are a nerd and you love what you do, and you are good at what you do.

Now we come full circle to who the next great Western hope of Steve Jobs clones will be: well they are nerds who choose to commercialise, and make that decision based upon technology they know customers want not investors, not business models and not in the first instance filing patents.  They will take with them other nerds who cannot do the entrepreneurial bit but can convert the science into commericalisable technologies. The stage away from this is then people who can "productise" these commercialisable prototypes and then those again who can make a profitable production line or contract out to one.

We need to get back to more pure science while at the same time educating people about how their related industry works and how to be entrepreneurs to make trading businesses work.

IT is a particular branch where the industry was previously pretty close to academia and academic research could find commericialisation a rapid route. Biotech, or rather bio-pharma, has always been seen as a long way to trading, but that need not be the case as you can sell your IPR as a service as much as you can as a license from a patent, and thereby add value and retain industrial secrecy around the little bit of magic which earns you a 60% gross margin.

I am going too fast and a little too disjointed for you dear reader: let me close the loop on what I mean here as a good academic spin out environment for technology and start up SMEs:

There are two cultures we need to nurture: the idea of centres of excellence or what you could more innocently call nerd centres where the best, most committed minds gather to do what they find interesting. There needs to be less directive funding of science! More room for creativity and results based on original discovery, scrutiny of others work, theoritisation.

The other stream is to build a culture for entrepreneurialism at all universities: this includes the nerd population as its main source of candidates, not also ran business students: great some business students will get rich on some washing and cleaning, or trite consumer web service but they will never be the next Steve Jobs because they have so little science, so little real technology. Scientists can and do make the greatest entrepreneurs. A nerd with a passion for their subject is maybe immersed in that for nine years at University and given the right social skills to become an entrepreneur they will make a journey into business that the business graduate will never be able to make into leading a technology new enterprise.

I actually would recommend that universities look to what the trade off in having these non trading IPR companies and patent licensing versus getting more funding for the core science and developing a culture where trading companies spin out with their technologist researchers. That is to say avoid making these bubble companies who need feeding with soft capital all the way until they get inevitably bought out or go bust. Also patenting and commercialising can slow down research in a specific area or actually quite a wide area of science if everyone is trying to patent, because that locks away publication and some degree of progress in the field which could have lead to several nearer market, entrepreneurial companies estbalishing themselves in the area as competitors or each with their own niche or particular product or service offering to the industry.

There is the little crux of the matter: entrepreneurs see the near time money, sometimes they need soft capital and eventually VC to get there, but they see the business in terms of customers, selling, income and profit in that order. Commercialising academics see a new source of funding for science, access to a higher or sustained salary and a feather bed of other people's money and other people being in-touch-with-industry.

There is there in a case then for graduates and post docs to work in industry on a sabbatical nature - or part time - in order to be more in touch with technologies and production methods for those, which are the application in practice for their science to supply benefits in the real world -- no matter how esoteric they may seem to you and I for that industry!

Major corporates have centres for entrepreneurship and also in licensing,  A&R departments if you like, and it would be interesting to gauge more about the success of these versus standard R&D and versus buying out SMEs who have run either as trading companies which I prefer or in the established model for IPR based companies to "exit" by being acquired.

The next "Steve Jobs" will be a leader of nerds and not a followers of business gurus that is for sure.

Technology Start Up Companies and SMEs and Working Captial Concepts

I blogged last time about cash flow and being a cash positive business or for that matter household. This last blog touched on technology companies, and in the west more and more of us had better end up working for high tech otherwise we will fall behind into a malaise of false value creation which caused this major recession!

There is an irony in this last statement - it can be argued that it was the over valuation of technology companies, especially internet and bio-pharma, which lead to the scenario where high returns on investment turned away from mere overstating hopes for revenues from technologies to outright distortion and criminality based on property. I don't know if in terms of actual monies if there is such a cause and effect relationship, with the "sub prime" fiasco being offered as a lifeboat to investors or used as a band-aid over mediocre performance of technology stocks I don't know.

One concept the last blog and the preceding paragraphs skirt around then is the true cash-flow technology company - a trading business - versus the technology development company -. the R&D money capsule.

As you will know about me I have little time for the latter: I have given my reasons before and will wander into a rant on why I just don't like R&D money capsules. Essentially there is a key difference in personnel which creates a recipe for failure as follows:

These type of businesses are usually started by a "nerd", of a tech-geek and worse it is usually a wee crowd of them in post doc' type or regus professor positions. Otherwise they are slightly geeky nerds who have worked in commercial technology and been shunned from internal R&D resources.

When VC or even soft capital get involved the company suddenly gains a layer of management who allegedly are a good fit from a tech background. Invariably they have quite different experiences and the key CFO has little sense for the science what so ever.

Now what is missing here? Great ideas and the best, dependable management to spend the cash from the net working capital?  Well the one person who is lacking here is an entrepreneur or a team of entrepreneurial leaders.

The reverse is true of trading businesses - yes they have plenty nerds but they have a super geek leader who knows how to make a deal and how to make profit from selling stuff!

There was a little joke played in VC (venture capital) environments when a viral campaign asked them to review the proposed team for a new IT hardware and OS firm. The curriculum vitaes and CVs were seen as a joke, nothing they would invest money or even more time in. The team being presented to them anonymously were the Apple team from the 1970s.

Now back to the last blog theme on cash flow: In the trading business then positive cash flow in real periods is the life blood, while in the technology bubble cash flow is a paper exercise until it becomes obvious that they will need to spend a way larger amount to make their milestone, or the promises of the technology have proven to be less of an incremental benefit than anticipated in the early market. Worse, the key patent is rejected for the reasons above.

There is actually a third way, a hybrid type company: this actually either from a capsule who decide to raise more cash by selling some of their labour or ideas, or the reverse where by a trading company decides to start an R&D project big enough to change the essence of the main cash sources and outgoings.

I can't say I have met any of the latter, but several of the former spring to mind in biotech and in fact in the oil technology business. Due to tax reasons, the route to developing either a trading wing or a major R&D investment usually results in the separation of the companies into two entities or often three, with a holding company above the two and owning perhaps some assets there in. This is a shame because it will bring in new, non entrepreneurial accountants basically, that being  with high salaries!

There are actually many Steve Jobs in industry who unfortunately felt the heat of becoming a wall street listed company and got out. Invitrogen (life technologies) and a score of other biotech tools companies it eventually eat shared this story, where the entrepreneurial core bailed out. Some companies survive very well, others fail or get taken over rather quickly as they loose their soul if you like.

Steve jobs stayed the course by always knowing that he needed to use money people not the other way around. He was the "apple core" , the nuclear reactor with a driven, domineering yet charismatic and diplomatic personality. He saw along the way people who he though could work with him, not over him or around him. Thus he could continue leading the market oriented technology development and eventually years of sticking to being arrogantly different and subtly stylish paid off with enormous benefits to the company and stock holders.


Tuesday, October 29, 2013

Cash Flow- Discipline for SMEs

Two things I found out - one I had been doing far too much management accounting which  I was not getting paid for, and secondly I had invented my own perfect cash flow forecast and analysis spreadsheet for the minutiae of home economics.

This little video sums it up pretty nicely, and I have been through an hour or so on youtube and really this is the deal anyway! ( the business owner looks and sounds a bit like Scarlett Johansson too)

The most interesting issue is that businesses can actually survive with no profitability far longer than they can without cash flow. When the cash in versus cash out is negative when the last bills come to be paid, then technically the patient is dead: the heart has been deprived of blood and dies: the company is bankrupt.

In fact cash flow analysis and planning will help a profitable company avoid "liquidity" problems or actually going bust, by allowing company to act in the following ways:

1) It is a discipline on actual costs and actual incomes played over a realistic time period, usually quarterly and monthly but also down to bi-weekly.

2) It helps you understand that your gross margin contributions are actually high enough to contribute to positive net working capital, a financial analysis which is really a cash flow analysis plus any saving in cash and assets which could be sold to raise cash in the short term.

3) with one and two in mind, it means that cash reserves can be put aside to
a) stem seasonality in sales income
b) reduce reliance on other "current assets" by making crisis more forseeable or on the radar earlier
c) ensure there is always enough money in the bank to pay bills
d) cover annual or seasonally large "overhead" costs or investment costs

4) taking all into account for a small business or large, it means using analysis tools and planning define and can control the  parameters of when the wave of cash comes in from customers and when it goes out to employees, creditors and suppliers.

Good analysis and planning mean that you as said above, plan to have enough cash in the bank to pay your liabilities for that period, and in a struggling business believe me that period is actually defined by the point in the month when you have to pay your employees and you have to pay your bank, because not paying either will lead to a bigger crisis in confidence and law breaking.

For larger businesses cash flow has impact on financial accounting as well as what we are discussing here, management accounting which is operational: a company must actually prove it was profitable usually by presenting annual accounts which include really a summary of start cash and end cash for the year, and total outgoings and total income.  There is a huge game to play in getting cash in longer before it must go out again and using "virtual profit" or rolling gross margin to fund a business while creditors are paid on a basis which is delayed to achieve a temporary positive cash flow.

Back then to the topic of WHEN to define your period start and end for a small company- a sensible approach is then to have the start period actually as month end last month and the stop of that period being the day before you have to pay your employees and maybe say a week before you have scheduled to pay your bank loans and any overdraught settlements.

It may seem nice and neat to do it month start to month end but then you are getting into a "nice to have and to look at" cash flow analysis which does not diagnose the patient's health until two weeks after it needed to.

So say that we start month end - we expect to get paid in a 31 day month by all 30 day customers billed in the preceeding month and any work on 14 days closing on the 16th of the month. We then maybe have in that some leeway for electronic bank delays (suspicious net positive cash flow skalduggery in the banking sector!) and actual money in: no issue, as long as we know what we SHOULD get in and that this amount plus starting cash in bank or easily accessed reserves will cover our planned outgoings to say week 3 of the next month, the 21st - the day we file payments to employees and assign monies to pay debts.

Now you see the importance of leeway- in another analogy, we have some wriggle-room here for the small business - we actually have three weeks in which to collect all our income or alternatively, reschedule our debt or raise more cash from or towards working capital.

So we have a discipline of getting money and being nervous about there being enough for quite some time maybe, until we realise how nice it would be to spend less time chasing debt over 2 weeks from customers and cover some potential bad debt from their side too by building up net working capital or gross margin on sales so that we can cut back on accounts receivable and pay more sales people....

Also then, we can then look more at the bigger picture and look at that seasonality or to cover potential down turns while we liquidate assets or reduce costs. Furthermore we may want to use a particularly cash positive period to reduce debt or invest in the business and make ourselves more tax efficient relative to ambitions of the company and net capital worth of the company.

Then we can look at using month start-month end and quarterly instruments which use the same basic information, but then we have actually in a year where we operate effectively 49 weeks, 180 days or so, we reduce the stress on the organisation by 60 days if you like: we have 60 days longer to analyse cash while we know we have enough cash on hand- We can then take extraordinary costs and events into account as just that, and go pleading for longer line of credit from suppliers and new loans from our creditors.

Fundamentally though, for many SME's a three week cash flow analysis cycle-projection, and a quarterly statement to the board of directors (excluding extraodinary events) will help you face the facts of whether your break even analysis was correct based on your initial cost-sales calculations, and what you need to do to pricing or volume of sales to increase income, and what you need to do on the other hand to reduce costs.

The three week discipline is very focused on keeping the bank happy, your employees working  and also on just running a tight ship in front of all parties so that you are known as a serious business. It also in fact means that with a reasonably good accounting set up for payable versus receivable and management attention to costs and bills, that if it is delegated away from core entrepreneurial management then the self discipline for the accountants means that they know of the cash flow shortfall by the end of week one of the three weeks, while if the balance is at least made ( banked cash IN equals or exceeds payments out two weeks later), then they can concentrate on those two weeks ahead on final notices to overdue customers and then take the last 2 weeks - ten working days - in collecting accounts receivable to be banked by the start of the next analysis cycle instead of having the two month end tasks collide- ie in week 4 they are preparing an arbitary cash flow from day 1 to day 31 ( or 31 to 31 as some do) at the same time as trying to make it happen.

The period is last working day last month to day of payment, but the analysis point is actually about one week into that three weeks when the balance is reviewed as a health statement to management that this month the heart will at least beat.

In terms of financial reporting to the banks or authorities the cash flow analysis just needs that arbitrary historical data per calendar month which is difference accounts payable cashed to accounts receivable cash. This is then done often quarterly for the board or some authorities and not presented until the data is analysed the in the weeks subsequent to the quarter in the calender being finished.

As you see then, you could easily be lead into arbitrary accounting practices by employing accountants who are too financial accounting oriented- ie counting the beans and calling the score when the game is over, rather than looking at the play on the field at the right times to be able to alert you to a short fall in real ability to pay your people. It is though rather easy to employee people on the right footing to operate in this way in an SME though, or realign an accounting department to be more focused on cash flow.

Really looking at debt ageing and days to payment from receipt goods and so on are academic exercises if you cannot get the lion's share of the money you are owed in on time to pay bills, and use the positive contribution from margin above covering the overhead costs effectively over a longer term to  pay large seasonal liabilities, span seasonal low income or fuel more investment in your business.

Suddenly you can find that you have investment money you did not know you had, but remember that you cannot avoid "death and taxes" if there is not cash later: hwoever you can indeed rob Peter to pay Paul using cash flow. You can gain a lot of investment money by stretching your cash flow out - longer terms for suppliers, shorter terms and cash % of full work on commencement

Take two of the many SME's I have worked with:

1) The effective CEO ( being banned from being a director) in one business services company said openly to we in management that we used suppliers to fund the business- ie we had the net flow of cash in with the gross margin on top, way before we paid them. We would borrow short term from them by either having goof lines of credit, or avoiding paying them and then paying small interest payments on each bill. Further to this, any mistakes we could correct and "sell out" anyway, were disputed such that those outgoings were frozen relative to the actual income we managed to get.

2) In the drinks importer and distributor, we had a good deal of customers on account- that is to say a consolidated month end bill with 30 days to pay. Now, you can believe that the first working days of the new month were hectic, because they would stock up to hell with beer and spirits knowing they had about 55 days to bank the money before they paid us, and then in the mid nineties, they still had " the cheque is in the post love" to reply when challenged beyond 60 days.

On the internal side though, for all those "debtors" we had a CFO meeting every bloody friday afternoon to see who had not paid and who would not receive any more stock until they paid their terms.  This was a discipline also on the "lion's share" of the incoming cash to the cash flow too as larger accounts were confirmed payed or expected each and every week. Now the bar and club sector was run by enough independent wide boys and sharp small chain owners to mean that you had to stop any more sales to some and offer poorer credit as soon as they went over their line of payment and limits were set to many's accounts until they showed they could pay.



As first an account manager and then a project manager and later a specialist consultant in marketing, I was never really that exposed to cash flow until companies were at death's door. I saw it as boring, while being more interested in having enough resources and quality to deliver on time to the customer such that we could bill out on time-. that much  is true! However the topic may be dull, but having a grip on the realities of it will help you be a more respected manager in an SME and of course if you become an entrepreneur, you will have the attitude to be disciplined as hell about positive cash flow and being able to show your financial backers that you have a solvent, viable business running to plan or at least sustainable.

As I mentioned at the start, for my HOME economy, I divised on my own back based on a revenue analysis P/L statement actual start-end cash flows with an idea of potential bank balances at period start and end.

I should have done this on a shorter period that the calender month at some points in time, because it came down to panicing! However luckily income as an employee is 99% predictable for each quarter forward given I get usually 3 months notice in the contract, and bills etc are at predictable time points, with history from several years, and they have a line of credit which allows for some robbing peter to pay paul.

Tuesday, October 22, 2013

How I would Turn Around A Web Company I Worked at Once

A decade or more ago now, I worked at an internet hotshop which was a little anonymous (due to a name change in part) but their capabilities were very well known in the regional internet supply chain  and the company managed some significant quality brands.

I write this aimed at the young  manager as much as the founder/ lead  entrepreneur .  Are you in financial trouble? This is likely to be cash-flow,  maybe some overhead issues, or caused by the nature of losing big clients, expected funding rounds or key employees.

Where do you start to turn your company around ? How can you do this when extra funding, over-draught and loans are not forthcoming?

 I was a project leader and became a shop floor manager for the whole internet show once the first raft of rats left a rocking ship at least, taking a big client with them.

Today I look back and realise I had all the skills actually to have turned around the place, on the internet division at least, I just didn't have the authority and to be honest because of that I wasn't going to beat myself up much more than I needed to. I did the job in front of me to try and fix my end of getting cash in the door not the restructuring.

Was the Company Worth Turning Around ?

Well firstly the company was in a position to be turn around or a lifeboat to a new venture with the old employees could have been created pretty easily. From our side internal strengths,  we had good brands, good experience, and a reputation for innovation and quality.

The company had enjoyed organic growth but needed some restructuring as the group was very top heavy ( it folded with 8 directors and 6 employees in the final dying days!) Also the market was ready both for the back end driven web sites, the tailored web shop solutions coupled to the quality graphic design and creative house with capabilities in traditional media - specialist in outdoor ad's, PR, events and through-the-line campaigns.

The resources side regionally was also very good with many graduates having ASP skills and some taking Cold Fusion themselves ( I actually embarked on using key core code in ASP to replace as much cold fustion as possible as it was too specialist a language) . Further to this,  several trad and start up agencies went bust in 2000 in our region  due to the turmoil and there were account managers with top consumer brand manager networks to be grabbed at what would have been a tiny investment in terms of ROI.

Why Did the Company Fail ?

So the company of theives could have been turned around but they had a major issue with two basic financial elements -the fulcrum effect due to high overhead and loss of a huge source of income  and the resulting cash poor situation which lead to a crisis in cash flow which  killed the company.

So to paraphrase they went into " organic death " !

The company was exposed to the fulcrum effect because they had so many directors on relatively fat salaries and profit sharing, and because they had been spoilt with one big fat client for many years. The internet account for this client was also the lions share of income on our side. The company did have some cash reserves, probably three months trading, but they had to pay off the internet director while also just carrying on pauing themselves the same high salaries for long enough to burn out rather than adjusting that. This is fairly typical in the advertising industry, SME side because they lose a client an just hope to get replacements in the next few months. It can be horrible "lumpy" business with cataclysms.

On the internet division I worked in and took over, we had issues with profitability mainly because of project creep and poor control over client approvals and payment plans. This meant if we just take this as the SBU in mind, that we had a major cash flow issue which were addressed incorrectly: staff who left were not replaced and in effect the company could neither deliver on time or quality without postponing some projects (buying time, which I did) . It all became very painful with a lot of time wasted on reporting the day to day progress on web sites to management who did not understand the programming.   Sound familiar? I guess there were countless super-nova internet agencies who went through the same implosion in 1999-2002.

How would I have turned the company around?

1) Cash is king in this situation

Cash flow is the key factor here: to put it as a stand up business idiot savant has on youtube, your company can live without profitability for a long time, over any horizon you can see, but without positive cash flow it can die tomorrow: cash is the blood for the heart and brain and the legs which do the work in a company, profit is a symptom that the patient is finally fit.

How do you get cash flow working better for you in a web company or in a business services or high tech , high investment, low income company for that matter ?

a) Charge out!

It may seem simple, get your bills out on time and check the customers pay up :   but getting the correct set of agreements to send out invoices is something which can be overlooked - in terms of cash flow this means getting the pay days forward so the cash is banked - every day counts - So internally the product must be "shipped" ie installed and the client has to have signed off.

This cannot be let to muddle around any time at all- project and sales get the sign off to accounts who do the invoice toute suite, even couriering it over to the client.

disagreements on quality or amendments have to be taken quickly so that the majority of the bill can be presented (this , we will of course come back to)

The mistake my company made was invoicing to buy more over draught with the bank - this was a plaster on the gaping sore. Basically they were on the edge of fraud because they told the banks and investors what they planned to invoice out before they knew that the work would be approved.

b) Charge out more often. Divide and conquer

This was a key issue for internet technology companies and still is: very often they did not have any plan about how they would bill clients- some had 50:50 if they could , but mostly there was just all that fluffy lovey internet shit going around at the time that people just presumed it would be high margin, enough investor liquidity in the business,  and the cash flow would take care of itself.

Worse, large sums of money could be withheld on the minutiae of corrections to web site content and graphic design.

To turn round a company from being a "paid later"  you need to go to the clients you know are committed to you and say that you require a payments plan - a lot of work, as was the case, was invested in them already and you would like to bill out over the next two months. Outside organisations in turn have their budgets and related cash flow so may be delighted to do this- use-it-or-loose it periodic budgets can be smoothed out so that a major web investment looks like run-rate marketing spend over four consequetive months!

Other clients will say "show me the work" and then you have to get into the smoke and mirrors: I recommended making HTML "dumb" mock ups of the work flows of several cold-fusion and ASP web sites (PHP was ironically an amateur joke back then!) so that we could wow the customer and make it look like an alpha-test.   We will come back to the vaneer of quality and Gee-Whizz factor in internet companies or technology companies later.

This is where though you have to start negotiating and being to a degree open and  honest with the client about the company requiring cash flow - you can dress it up a little

The next step of this is to manage projects better- avoid project creep and tie the client in to the correct cycle of approvals and link this to payments.

You can approach this by presenting in this case, a final plan to completion- the web site map, the work flow diagrams and the graphics which then seals the client in to a narrow way forward. Now you have them, because you had an original pitch and purchase spec at least, so project creep is stopped dead in its tracks! Now new wishes instead of becoming the wee marketing bitches lever to get more out of you, like her Jane in Breaking Bad, you have a way of billing out more as soon as they want more.

New projects have to be taken then with a site map in this industry, and a functional design spec and a web page template ( one reason many corporate web pages are boring these days! Web programmers want to make a profit, and heavy hits on big graphics costs big up line from the telecoms peeps) . These are taken as a consultancy project if your cash flow is so terminal that you cannot pitch without payback. No problem. There is nothing more pathetic than a whole pile of ill informed but very clever, free consultancy at the pitch stage. Much better to sell in some concepts and then sell in a contract to plan them out. Then bill those out!

The project then also has to have a plan with agreed approval points which are then in turn linked to payments: this can be best managed by for example, leaving the web shop or the intranet to be later sub projects - these days, the iPhone & Android app may be left to a new project if they are not crucial to the client.

2 .  Tighten your Project Management And Avoid "Project Creep"

In the same way as you need to tighten your sales and accounting admin' to get money in the door, you also have to tighten the hell out of project management in terms of managing customer expectations, the payment plans I talk about above, and then managing the internal resources towards near-time cash milestones. Internally the PM should know how to then manage a good enough contribution margin to come in within the key cash flow points in time ahead.

Many technology companies I know make several  fundamental ego mistakes:

i) on the one side they consider that their technical solution is so unique by its nature that it delivers huge value.

ii)  On the other side, the company over-deliver in actually exceeding the spec which was sold to the customer.

iii) They get involved with the customer as an admirer of their technology and allow projects to creep out of spec and out of profitability.

a) In the first instance, you need to have good, tight project management who are technologically savez because they need to examine making a profit and how big the benefit to the customer is. They have to analyse from the customer spec in outse, to what extent they maybe need a Mini instead of a Rolls Royce.

PM's should be involved then, early on when a potential client starts to discuss technical solutions such that cost-benefit expectations can be considered before the price is agreed.

b) Looking at the second presumption, which is basically "showing off" in the Royal Shakespeare Company in a flea pit theater, the same principles of ensuring the customer pays at a profit apply. You may need to go back and present the higher value solution as a variation order request if you like, or a revised pitch - with sales & marketing concentrating on the end benefits to the client.

c) The third point takes us forward from the first two, "  project creep " being caused by either of the above:   and you can read the acronym PC as  profit cutting.

Project creep is nearly always caused  by weakness in sales management or ego at a high level in the company.  Less often will a good project manager let a project creep beyond spec',  unless they are in love with the technology and don't care about the cash flow.  Once commenced a project should be moved away from new sales and owned by Project. If new sales come up with new ideas or the customer shows a potential for a deviation in spec, then PM have to say what the mechanic says "ooh, it is gonna cost you".

In the longer term, given more cash to burn,  it may be considered desirable to build your first Rolls Royce for a customer at a mini price in order for the company to gain the experience in delivery of the technology. I hate this personally - you should right size the offer for your customers budget or find new customers ( don't be afraid! I used to go to the world's biggest players in Biotechnology with new technologies, the doors flew open when the technology was in theory capable of providing enough potential value) . In any case in the current context of a cash strapped business this is the last thing you want to do, committing production and overhead to a major loss!

Tight project management also means creating the realisable work-in-progress stages of partial completions which should be shown to the client and approved: these should be linked to milestone payments but however if the client has refused to do partial payments then do this all anyway if the project can be delivered in a cash flow positive way in the run of the project.

d)It is up to senior management to de-prioritise later paying customer projects: the same mechanism of approvals can be used to stall the work such that internal resources down tools on that and get on with nearer-time money earners.

e) While on this topic of WIP approvals or milestone payments, here it is important all the way for sales and PMs to differentiate between reasonable amendments or corrections and those which are project creep.

f) For loose client specs or additional desires which are on top of a core contract, it is wise to get the client to agree to an hourly rate basis, being billed out every two weeks or at least at month end minus a week if you are strapped for cash.

g) Further to the last point on billing out hours on an open sheet, never be afraid to sell consultancy at any point in the process from initial sale to post installation analysis and tracking.  If anything is asked for by the client which is going to take time or involve intellectual effort and IPR in particular, don't be afraid to back up here  and sell it in as a consultancy project parallel to the current delivery or before or after.  Make this "run rate" business in charging smaller, frequent amounts to the client which are at high contribution margin.

Summary of Section 2 Tighten your Project Management

At the basis of all this above then, is that the company should have a clear specification of what will be delivered, with the customer able to visualise this as much as possible and be in complete agreement to the qualities, functionality and price. In the internet branch this means two things usually- a creative treatment, and a  functional design specification. The art here is to be comprehensive enough in both of these so as to hinder later project creep while also allowing for perhaps several technological solutions.

Secondly to this to any company who has a gap in their cash flow planning, ie no "in" figures for a particular period ahead, then they want to proesent a project plan for approvals of WIP, and alpha / Beta testing which is linked to payments. This is usually then one to two rolling quarters ahead for an internet agency with low run-rate business, while of course an agency in crisis will be looking at month end to month end !

3)  Realise your Liquid Assets and Part Finished Stock Are There In-Front of You

Code, programming graphics people,  quality perception and customers:

a) code, - get the good stuff documented and either protect it or disseminate it round the programmers so everyone can do it and integrate it. In a bigger company I would turn good programmers into technology managers who ensure that code is well bundled and documented such that it can be re-used on other projects- sellling out more, or saving time internally.

b) Programmers can be hire out, so can graphic'ers, conversely they can be hired in and paid just for the hours they work..

C) Back to vaneer- you can hire in qaulity graphics in particular from one man bands or small hot shops: the same goes for other technology areas- there is a whizz kid out there who can do one thing , but has no real access to market yet- you can license in or out source to get a higher quality product for which you can charge more and also charge underway.

Venture Capital often go round with the paranoia of the "fire sale" - what would happen if we closed them and tried to sell their assets, would we get a reasonable proportion of our original stake back? In fact conversely, if we had a fire-sale tommorrow would we raise more money for the fund than if we let the cash burn carry on towards eventual organic income and exit? That happened to a pal of mine, great hot shop, 20 programmers, fire-sale which back fired because the programmers were not tied to any work contract in particular and were in effect in control of the liquid assets! The whole thing dissolved. Burnt to a cinder in the fire.

Certainly that should be at the back of your mind: can you sell off some code, some part of the company, lease out staff to other sites or actually sell some some clients and their projects? The latter is the hardest to pull off, however I would have cast a life boat out with my programmers and the web sites i had left just to then re-establish a quality team and some virtual upselling from hot shops based on the wider client base and reputation. A kind of ashes and phoenix way of doing it.

Sales of departments or "husks" of dying companies take their time, and at the merest whiff of smoke that the company are going under, then competitors want to wait for the bankruptcy and ambulance chase instead. However, back then there were enough medium sized trad' agencies looking to get into the internet and also well funded internet agencies looking to put stuff in their production and their top line,  and grow by acquisition- even in the bubble- people in my area were on a longer term committment to the internet, and the bubble was not nearly so well funded- it was more reliant on organic growth and here you go - cash flow again.

d) Out Hiring! In terms of hiring out, there was a more than healthy market for all that because of this situation in my region- companies had the cash flow to survive but only barely, so hiring in often happened through multiple layers of reselling. We tried it ourselves and it went horribly wrong with some indians coming in having lied their way there and only barely able to programme HTML let alone much ASP or any cold fusion- half of our best code was sent in an e-mail when the guy realised he understood enough about it not to do it!

In a slightly bigger company you also have personnel department who can become a recruitment agency in a pretty short time, or be sacked and out sourced, buying maybe a 60 day delay on that cost down the line.
Access to market and in particular then, Brands, meant that we were probably quite attractive to some of the smaller hot shops as a new channel to income with some cut-and-paste fancy coding to be plumbed into our next round of web site revisions and new sales.

What also happened then was that Clients started buying agencies out due to the uncertainty of the financial foundation the industry was built on, and that the clients had made 7 figure investments in going "e" as it was called then. So there was a case for becoming a one client contractor, perhaps even moving into the premises of the client and awaiting "exit" by acquisition.

Summary  3 Realise your Liquid Assets - from all of this above you can start to see the options for a web company struggeling with negatibe cash flow on a month to month or annual result basis. The principles of billing out on time, tightening project control, selling out higher quality and selling out services to the industry itself are all very parallell with other high tech industries like software and app-ware of course as close cousins, but also biotech and nanotech where companies can often bring milestones in for reward for efforts earlier in the process, or sell services to the industry verticle channel or in related areas- i have been involved with Biotech at this level of decision making when I was on the board and management of a very interesting company in 2004-5.

4)  right size for the near-time money

In the agency I worked in we imploded in when the rats left the sinking ship and we basically could not feed the delivery side enough to meet cash flow requirements- we did not have enough production capacity.

We did outsource and this floated us for a while, but took nearly all our gross margin and in fact fuelled the cash flow crisis. We outsourced the wrong aspect of production- the dearest database integration and advanced programming: this would as I did later, have been better in house using languages and code which more graduates could tackle. We should have outsourced the basic HTML and jobbing graphic design (Illustrator TM work) because that was cheap, and we could down size internally on this, while up sizing on the more complex programming.

We ended up with a couple of good programmers on this and one who could then do "cut and paste" integration of code (database query and report stuff by in large) into other projects, and we tried to do everything in ASP instead of .cfm such that we were a bit future proofed and could scale up again.

So to summarise for your hi tech enterprise: you cannot afford to fire the best people if they are the chips stacked on the biggest money which is likely to come in over the next cash flow period, usually that is before the month end. On the other side of this too, you may need to actually up-source your staffing so that you can secure production of the key qualities you need to deliver: this may be then at the expense of the admin' workers or the workers who have completed their bit of the endeavour at a lower level. They can be laid off with a first refusal basis for re-hiring.

Also as a director you have to make a decision on stoking the fire more battening the hatches, as we will see in a later section on rescheduling debt ( as opposed to raising more investment or other finance, which is a pillow IMHO for many companies who should did themselves organically out of cash flow crises or never learn from that whip crack how important discipline is when they grow again and take even more risk!) 

5)  Remember You Must Deliver Value

While it is great to talk about billing out as early as you can, and getting paid for WIP (work in progress) or milestones of discovery, fundamentally you really have to be sure you can deliver the quality you promised or exceed it within your cost constraints.

All companies and whole countries convert value: they take something and sell something based on that for a higher price for which the value added benefit is worth or exceed that price.

This has an upside in going back to re-evaluating what you can bill out and if the project has crept

6) Plan Creditor Payments, Push Back on Sub Supplier's and Ask for important Rescheduling.

a) This needs to happen: in a crisis you need to reschedule debt payments, and  you need to delay payments to suppliers. This means usually you have to go down to a two week cash flow plan and see if you can ask for short delays on things that are due - often banks can be persuaded or private equity lenders can too, that a two week delay can alleviate a cash flow crisis and secure longer term payments. Investors and banks are very used to this situation.

b) It happens to all enterprises when they grow a little too quickly and come in a "negative liquidity" in their projected finances or actual operations. This is actually a cash flow bankruptcy if they spent what they previously had on their accounts payable ledger for the weeks or months ahead.

c) It has to be handled carefully: it requires planning and documentation of what the company will bill out before  there are some suppliers who you can just ignore, some are terrible at debt collecting and don't check payments are in until month end.

d) Also this is why it is best to not have your commercial bank as your major source of debt-  this is difficult but in start ups you are likely to have actually higher risk loans which are not available from standard banks anyway.

e) Even in healthier businesses you can exploit your supplier to fund your business with actual real cash flow: paying them after you get your cash in is the first trick, and then paying them even later is even better because you have used the positive cash flow more in creating new business and delivering other projects to payment date.

f)  Many companies sail more than close to the wind here, and are very late in paying suppliers or over inflate their sales or margin forecasts in order to reschedule debt or raise more debt.  In fact many companies abuse the difference between financial accounting and management accounting to basically temporarily break the law and then prove they did not later on when they clean up the cases, pay up to creditors, redistribute debt legally and present a clean bill of health in their annual report or a good honest loss for the year as the supreme cash flow period.

Summary of Section 6 - Rescheduling Creditor Payments
In a crisis you are going to have to reschedule what you pay out in order to have enough money in the bank when you do pay out. This comes down to fortnightly cash flow planning believe me, and checking that the planned payments come into the company.

Debtor meetings ie customer payment meetings, were a friday afternoon meeting EACH week in a beer and spirits importer I worked for and that company was cash rich! Based on what was coming in, we chose who we sold to or delayed shipping on the next week and often delayed shipment until they paid.

Generally creditors understand that cash flow varies and all companies can experience a negative projection which needs to be corrected for. As long as you can present a plausable plan for your cash flow to your lenders and you can schedule payments to key suppliers who are banging at the door for money, then you can survice. However if your income does not match your outgoings to theses sources plus your period costs, you have to reconsider the whole viability of the current business model.

Reprise: Turning Around Technology Companies 

Okay you could say "where is your effing strategy Fred Man?" this is all just different options, clutching at straws?

 You have to be realistic - are you just failing to stem-the-tide in a company which cannot earn enough money to ever be profitable  ?

Or do you know that you have enough contribution margin from jobs and enough in your "sales funnel" to this pricing that you will be in positive cash situation later and this is just a temporary cash-drought ?

Well when you are doing almost one week cash flow analysis periods  then yeah, you are clutching at straws and you have to find out which routes are going to work in the time frame you have in front of you. A single route would be high risk, but it may be the one that opens up with the most cash for everyone- the best solution, even if that means in effect the company no longer exists- you get your own personal cash flow maybe for a couple of months longer you can see in front of you, which buys you time to play around with the new owners or bosses and look on the job market.

As a manager in such a company, in these type of periods you want to have a lot of time out of the office in meetings - mot of these will be exploring the options as above, but some of this will be saving your own ass by on the one hand building your personal brand in the industry and on the other, more modest hand, finding out who is hiring or may really benefit from you.

What Actually happened  at the internet company I worked in....

Well, that is what the CEO ended up doing- eventually it came to a firesale, and they all just sat back and let it smoulder until he came offering his services as an employee. He busted his balls with the bank and investors instead of putting up some figures to show the company could organise cash flow by billling out and have a bigger top line within that picture. He burned OPM cash instead of digging organic.

Broader Economic Perspective on Sustainability of High Tech Companies 

Despite different tax balancing mechanisms and the potential for re-financing  the company with new investment, you have to ask if the cash flow negativity is a function of too low a contribution margin, too low a sales ledger top line or too high an overhead ?

I am not a believer in trying to sustain companies which cannot grow organically. Sure there are high value intellectual property companies out there who sell nothing and just burn cash,  but they are vulnerable all the way to fire-sale as soon as they make their greatest achievements - investment milestones.

The reverse actually is what I prefer I believe it is often better for the IPR to be largely owned in another vehicle with a favourable daughter company or university spin off company in licensing agreement. I have worked with several technology companies who actually have the key to the value conversion of patents by having industrial secrets (some may well obliviate the original patent by proving it is not complete to realisation by a "qualified person") Alternatively those companies who don't actually realise that it is their internal endeavour which is driving the value of the patents, not the contrary. Here they  should impose  secrecy  on key points in their value conversion.