Cautious Optimism

Happy New Year!

It seems that we might be seeing some early signs of a recovery, or at least the bottom appears to be behind us. The macroeconomy finally appears to be showing some signs of stability and recovery in pockets.  And, in expansion stage companies that OpenView Venture Partners talks to as potential investments (as well as technology companies in our own portfolio), we are seeing some positive trends coming out of 2009.

From a former-CFO’s perspective, I am continuing to counsel technology companies to be cautious, as hard as that might be when faced with these first positive glimmers, and be wary of a potential “W” in the economy.

What is a “W?” No, I’m not talking about George.

A “W” in today’s context refers to short-term upturn that may be the result of stimulus spending, but which may revert back to a sustained economic downturn once the initial spark of the stimulus injection has been absorbed.

For an expansion stage company, this means…

1. Continue to watch sales and marketing metrics like a hawk! Look for leading indicators wherever possible that may indicate potential deterioration of conversions or ROI.
2. Be cautious about increasing spending more rapidly than your company’s topline is improving. In fact, it’s a good idea to try to continue lagging any increase in non-revenue generating expenditures. My old approach was to squeeze out every last dime of my company’s cost structure until I started hearing real screams from other members of the management team. Well, not literally…but if you’re a CFO, you probably get the idea.
3. Continue to hone your company’s economic model. If you really understand your company’s economic model, you’ll understand the dials that can be turned to optimize it. If you can continue to optimize that model, no matter whether we’re in a downturn, an upturn or a W, you’re going to be well ahead of your expansion-stage competitors who are still trying to figure out exactly what an economic model is.
4. Continue to foster a culture that encourages culling of the herd. Just because your company’s topline might be improving, this is not the time to ignore poor performers. Make sure that poor performers receive the training they need, are moved to a better-suited role, or are transitioned on. 
5. Do not lose the rigor of monitoring forecasts and financial reporting that your company developed during the down-turn. The moment you think you can breathe a sigh of relief and cut down the number of forecasts or indicators you were monitoring over the past 12-18 months, I can almost guarantee that you will be surprised or blind-sided by one of those areas you thought were under control. 
6. Keep an eye on your competitors and your target market. How are they coming out of the downturn? Are they slipping back?Keep an eye on your own lost deal metrics. Don’t become so blinded by your company’s new-found success that you miss an external indicator of a potential dip.

Hopefully we won’t need to be in this mode forever! But for now, cautious optimism is best.

Stay tuned for more from Out of the Back Office next week!