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Happy Birthday, we are 20 years old today: A tale of two recessions

Being a recession survivor – By Martin Dower.

Twenty years in business. We’ve seen two major recessions, yet we’re still alive and kicking.

On December 8th 1996, Connected was founded as an internet agency and web development house. We were born at the moment of the start of the Internet revolution. It was like the Wild West. There were no blueprints, we largely made it up as we went along. It was ace.

This year we’ve been celebrating reaching 2 decades, culminating in London Xmas 2016. This week folks are descending from all corners of the globe and spending a week patting each other backs, drinking too much and generally partying. It’s great when we get everyone together, and they deserve it – the path to get to here is long, twisty, bumpy and not everyone made it.

We’re never ones to normally dwell on the past, but knowing where you’ve come from and how you’ve got here helps us to stay grounded, and the seemingly endemic hubris that pervades the digital marketing space. We’ve always played the long-game – no doubt missing out on lots of short-term opportunities along the way – and that’s the number one reason were still trading today.

Hard, wise or lucky?

At 51, I’d like to think I’m a battle hardened small business survivor, but it wasn’t always that way. When we started out, I was a cynical 30 year old sales and marketing bod who had only been a small cog in big companies, mainly American, mostly in the City of London. Not exactly a broad skill set, or even relevant to running a small business.

However, formed out of an idea that had been kicking around for a few months, and my frustration with the bland US-corporate culture, Jerry and myself decided to start a new venture. I had met Jerry a decade earlier when we both worked for the same company in London’s West End and he had become a self-taught programmer in the 1980s and was intrigued by this new “internet thing”. Internet for now going to be our thing.

None of my friends had even heard of the Internet at the time. Most thought us mad.

A few quid thrown into the pot, and Connected was formed under a loose 50/50 partnership agreement that saw me fund the operational cost for the first 18 months until it found it’s feet. And Jerry grafted, working 60 hours a week delivering web-stuff.

We were remote from day one, no ofiices, learning from my time with the corporate computing world made me realise that well motivated folks who had the right technology were more efficient and happier if they were not tied to an office. Costs were keep low to manage risk, nor could we afford to play fast and loose.

The Dot Com Crash

Roll forward a few years and in 2000 came the first major recession in the digital space. In fact, it was less of a recession and more of a crash. The US the NASDAQ fell from over 5,000 in March 2000 to under 1,500 in a few months as the bubble burst and thousands of companies went to the wall as the realisation hit that web businesses with little or no revenue were fundamentally worthless.

Companies recently floated and valued at billions suddenly went to zero, pretty much overnight. Good companies got caught up in the bloodletting, too: Amazon’s share price fell from $107 to just $7. 16 years later it’s around $750 mark.

It was quite funny to watch. When I say funny, I mean surreal.

When we had started the business a few years earlier everyone said we were quite insane, but we’d got off to a flying start and gained some high-profile clients, made some money and “the internet” was starting to catch on. Those who had scoffed in 1997 had to eat humble pie by 1999 and then went back to scoffing when the enormity of the dot com crash hit the headlines. By 2002 our turnover had dropped 40%. It hurt, but we survived.

I had remembered the previous recession. The early 1990s saw mortgage rates over 15% (today they’re under 2%), unemployment rose to 10% and folks were panicking about the end of the world.

Except, recessions are cyclical – driven by over-confidence and poor management that eventually requires a correction. It’s not new, look at 1919, 1930, 1956, 1961, 1974 and 1980. It’s just something you should plan for, or at least save for. (It also suggests we’re due another recession in the next few years, probably early 2020s or even sooner if the world keeps voting the way it has done in 2016!).

At the time, lots of companies just threw the towel in, weighed down by debt, bloated inventory, mental salaries, loss-making customers, greedy owners and unrealistic investors. It’s estimated that less than 1% of internet businesses founded in the 1990s are still operating under their own steam.

That makes us one of the 1%. It had been close for a while but prudent cash reserves, low overheads and a little bit of refinancing and we were safe and secure.

Some went looking for funding; Google went up for sale, the asking price was $1m attracted no takers. Most just ran out of money and closed their doors – some did it in impressive style: Boo.com burned through $100m in 18 months, Pets.com were even quicker, $120m in 9 months. It was also the beginning of the end for a lot of Internet 1.0 companies including GeoCities, eXcite, Broadcast.com and Yahoo (still hanging on, but really only due to it’s investment in Alibaba).

A New Millenium

Enter Web 2.0, and a new breed of companies, leaner, better funded and more agile – many of the Internet 1.0 companies struggled to adapt and got bought or died. It also signalled the start of another cycle of over-confidence until the next recession hit in 2008.

Unlike the dot com crash, the 2008 recession was not industry specific, its was global and shared it’s roots in poor financial risk management (ring any bells from the early 1990s?). Companies crashed, valuations fells, heads were lopped off, countries went bust and global spending was slashed.

Although the world-wide ramifications were enormous, it hardly effected us – we’d built up a sizeable financial buffer and weathered the storm that went on for half a decade. The young, the weak, the slow, and the daft were the only real casualties.

Recession First Aid Kit

The motto seems to be, “survive your first recession and everything will be okay” and I’d agree except I think there are good planning and structure things companies can put in place to be able to weather the storm of recession.

Firstly, stay scaleable and that includes down as well as up. Too many focus on upward scaleablity and today’s modern organisation has to be able to flex in both directions.

Secondly, build a war chest. At a minimum you should have 6 months of cashflow saved away, and preferably much more. In recession, those with cash always end up winners.

Thirdly, a recession is coming. It is not a possible, it is definite unless the world suddenly goes all weird. The longest period without recession in the last 100 year is just 15 years (1993-2008). Proper planning prevent pisspoor performance, as the saying going.

Fourthly, make hay when the sun shines. Enjoy the good times, spend wisely but do spend. We are all a long-time dead.

And here’s to the next twenty years in business, but I suppose the next big party is when we reach 25 years old. Roll on 2021.