As the markets tumbled last week and the euro zone wobbles further, there is some concern that we are in for a double dip recession in the West, so I thought I would explore the topic of bootstrapping your business. This term came from describing companies who develop from start up stage with little or no funding. Some examples of these type of companies, which went on to become giants of today, are eBay, Microsoft and Oracle as shared by Kennet.
How can we make sure that our business is in the best shape for the tough times ahead and can we take lessons from the “bootstrappers?”
Any start up company is used to a lack of funds and I remember back to my start up days when I had to wear the hat of IT, Marketing and Finance Director and we scrutinised closely all costs and cash flow.
I thought it would be interesting to put my start up hat back on to explore how larger, more established companies could take some lessons from some bootstrapping. I’ve also asked for some tips from those who are used to working with travel companies of all sizes.
At the recent AWTE event last week I turned to Chris Photi for his top tips. Chris looked after our travel company accounts in my start up days and his company White Hart Associates looks after the accounts of more than 200 travel companies. His sobering words were:
“This is the toughest travel market I’ve seen in 33 years… I would be taking a hard look at your overheads and converting as many as you can into variable costs.” The key phrase that came out of our conversation was “you need to be lean and mean”.
Take a hard look at your processes
“Lean and mean” does not mean squeezing your suppliers by not paying them on time leading to their demise, but it may mean looking at “factoring” or negotiating extended settlement times. You need cooperation from your business partners to work together more efficiently to take cost out of your supply chain. You will not build goodwill or cooperation by treating your suppliers badly.
Sometimes your suppliers and business partners can be a great sounding board as to how you can cut costs. Over the years of working in business I am surprised how many companies don’t spend enough time looking at their end to end processes and how discussions on this topic can actually uncover many surprises. I remember one company I worked with which had gone to great cost to produce client reports which their client never actually read. No one had ever asked them what they did with the report or how they used it.
Encouraging suggestions and new ideas
Sometimes your staff have the best ideas as to how you can save money and it’s a case of making sure they are asked to participate and share ideas and best practice. If you make this a regular part of any team meetings – that can save a lot. Reward and recognition programmes can keep staff ideas flowing freely.
Stay close to your customer
The one thing you do not want to skip in hard times is communication with your customer. You need to be on the pulse of how their business is doing. Having a regular catch up call or email exchange is critical to knowing when the opportunities and a change of fortune happen.
Use social media channels to test ideas
Starting discussions on Facebook with customers or in a Linkedin industry discussion group is a great way to get valuable feedback on new products or services you may wish to launch. You can run polls or virtual events with customers and get great feedback without having to spend big money on expensive research facilities. Many companies such as 99 designs are now run on the basis of “crowdsourcing” ideas to create client designs. Here is an example of a T Shirt company called Threadlessthat gets its customers to vote on the best designs which are then put into production.
Beta is fine
Don’t wait for everything to be perfect before you launch your new product or service. A beta version gives you the chance to get valuable feedback from your customers. In fact it’s best to involve your customer in the design of products and services from the start and can save you a lot of money in the long run.
Anyone who has read the “The four hour work week” by Tim Ferris will know you can now outsource all manner of work using a host of different online providers which can work out even cheaper than trying to do the work in house. Before you jump through the costly process of hiring more staff, think about whether a more flexible approach might work, whether that’s a virtual PA or outsourcing projects to a freelancer.
In these uncertain times think carefully before you jump to sign onerous contracts which commit you to spending money too far in the future on everything from equipment to premises and servicing. The key to keeping lean and mean is flexibility and suitable break clauses in all your contracts. Look for monthly payment terms and leasing options, rather than tying up capital for longer periods.
Using virtual meeting tools
You don’t always have to meet face to face with people to get things done and in fact often the reverse is true and you get more done with less meetings. Some companies have meetings standing up to ensure they are as short as possible. Strict agendas circulated in advance with time set limits for discussions and a good Chairperson are very important for keeping meetings to time.
I’m still surprised how few companies use free tools like Skype for holding meetings or conference calls or tools like Gotomeeting. Sometimes we clog up emails with attachments when we could use free tools like Google Docs or free online workspaces for collaborating on documents and projects.
Cash flow is king
Take a hard look at your projected cash flows and run a few scenarios based on business not being quite as rosy as you forecast. Ensure that the performance of your staff is measured based on getting the bills paid and run weekly reports on your debtors. Fire the customers that are losing your company money if they cannot be persuaded to change their behaviour. Run credit checks on clients and make sure that they have a good credit record. There are plenty of very affordable credit check packages you can purchase. Some of the most successful entrepreneurs I know go looking for sources of funding and a loan facility, before they actually need them.
Automate your payment collection
Direct debit is an amazing way to improve cash flow and save a lot of admin cost. Plenty of companies incentivise their customers to pay in this way to reduce their bookkeeping costs. One of my clients used the percentage of customers on direct debit arrangements as one of its key performance indicators, aswell as repeat business.
Key metrics and reviews
Look at your cash burn rate and your customer acquisition rate. As you know it’s cheaper to service an existing customer than chasing new ones. Have you missed any opportunities with customers to provide additional services or products? The best indicator of your future business potential is knowing what percentage of your customers would recommend your products and services to their friends and colleagues. If your business has no visible online fans, followers, customer reviews or testimonials it will struggle against those that do.
Performance related pay and tackling poor performance issues
No business can carry its staff and especially not in tough times. I talk to people who tell me their board is not performing or their staff have taken way too much time off but they have not done anything about it. Root out the causes of poor performance and low morale immediately and ensure all your pay structures are linked to performance.
Check the health of your sales pipeline
It’s important to check what your sales pipeline looks like. If new business is not coming in as fast as before, look at how you can improve conversion levels. Are you putting too many barriers in the way of customer sign up? How can you make it easier for them to do business with you?
Key a close eye on your competitors
When times are hard you may discover that you have a new set of competitors who have decided to edge in on your established market. Make sure you have done your price and service comparison and the reasons why customers buy from you are still strong. This is especially true for companies that have been used to a lead market position who start to suffer from “sleepiness”.
Leverage the wealth of interns
I have been lucky over the years in having interns who were keen to learn and provided real value. Many graduates are looking for internship opportunities. If you have a project or need to find better ways of working, create an internship and choose an intern to come and tackle the project. You will be amazed how much value your business can reap from a fresh pair of eyes that can often see improved ways of doing things. The key to success is to make sure they have a “mentor” in your business to support them and that their project brief is fully documented and understood.
Want to know more?
Come along to one of the Talk Business sessions at the World Travel Market on Thursday November 10th 2011, with successful entrepreneur Karren Brady, Vice Chairman of West Ham Football Club, Steve Byrne CEO, Travel Counsellors, Chris Photi, Partner, White Hart Associates, Caroline Rifkind from PWC and David James CEO of European Tourism Action Group. Learn from the experts managing successful businesses as to how to position your business to “fight to survive” the storms ahead.
Here are some useful links for taking a new look at how you do business and for early stage companies:
Guy Kawasaki– “The Art of Bootstrapping” Jan 26, 2006
Seth Godin – “The Bootstrapper’s Bible”
Want to network with some travel companies?
Come to our informal social media networking event in London on Monday 3rd October.
Want to learn more about social media? Click here
 Association of Women Travel Executives