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Director of Finance

From Director of Finance (4 August 2008)

Financing and strategy in the downturn

Written by Gary Howes

Director of Finance Bill Flind pulled his company through the dotcom bust of 2000 and offers advice on how to beat the current downturn.

BIW was founded in 2000, and like all start-ups was faced with the need to get the capital together to put the company into operation.

At the start of 2000 the plan, as was common with a number of IT companies at the time, was to raise capital through an IPO. The initial target was £12m, with £3m already raised about £9m would come from the IPO.

In September the illustrious dotcom crash precipitated and investors upped and left IT investments quicker than they had gone into them; the industry had become a no go zone in a very short period of time, leaving BIW in a funding tight spot.

Changing channels

Flind says that at the time the traditional funding channels were shut, venture capitalists, lenders and banks would not look at companies that were now seen as high risk in the prevailing climate. “People ran for cover, the conventional routes were shut to us,” says Flind.

With the obvious door now closed Flind needed to spearhead funding drives into other areas, and this is an extremely relevant lesson in capital sourcing that all organisations can take note of, whether starting out or staring down a funding gap.

Despite this an additional £5m was raised through other channels – private investors were approached and the importance of networking and following up on potential funding leads became crucial.

Flexibility in strategy

While another £5m was raised through other channels such as private investment it still fell short of the initially hoped for £9m. The initial amount was a well thought out figure and the strategy for growth and development would depend on the amount, £4m is a relatively large funding hole to plug for a company at a fragile stage in its existence.

Flind says that this is where the main advantage of being a small company comes to the fore – that of being flexible. It is crucial to be able to change approach, to change the business plan and strategy to adapt to circumstances.

While larger corporates have big cash reserves and asset bases to fall back on the smaller company does not – but they have flexibility and can change direction quickly. Leveraging this advantage is crucial and ultimately, combined with shrewd financing, this is what allows BIW to be in business today.

Are you focusing in the right area?

Flind says, “raising money detracts from the core business that needs to be done, we got to the point where they decided it was time to focus on the business and ensure it worked.” Hence BIW took stock of the money they had raised and realised that searching for more would actually start becoming counter productive.

The basics for BIW and of course anyone in business is looking at the basics, this being product and service. This meant ditching initial plans of employing a dedicated sales team to plug the product BIW offered.

“We made sure we had the product right, and this was achieved by our core team of 25-30 developers and implementers,” says Flind, the selling was then done by themselves. After all, who is in the best position to sell the product? Those that developed and know the product, they have the knowledge and the passion to successfully get others to buy into it.

Sectors

9/11 was a crucial time for the company. Still a fledgling the terror attacks had hard-hitting implications for the building and construction sector, which provide the backbone of BIW’s customers.

Commercial property in particular took a hit. However because of the failure in commercial property ventures the company decided to focus on government, utilities and transport sectors in the construction industry.

With big government and corporate backing they tend to be resilient in such downturns. Having a clear insight insists Flind is what enabled them to come up with a sure and safe strategy, and it is a strategy that has put them in good standing today in a construction sector that is undoubtedly taking the brunt of the credit crunch beating.

Cash cash cash

Flind says how you sell your product will have an ultimate say on the essence of your business – the cash flow. By selling software as a service BIW can adequately plan the companies direction based on future cashflows. They can see the orders in advance and can therefore budget adequately.

In the current climate Flind believes that those rely on constantly finding new business will suffer as this is a much more unfathomable business model to the service based model BIW offer. He also believes non blue chip companies will suffer, but those that are placed around government and authorities will ultimately be strong.

And finally – the three golden rules from Bill Flind:

  • Stay on top of cash
  • Get involved in sales yourself
  • Stay on top of cash

(Original article available online here)

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