Navigating a Company’s Life Cycle
Seth Asofsky – Principal
During the lifecycle of a company, the one certainty is that you will encounter challenges or obstacles, some even out of your control. You will have to be flexible in your thinking and adapt your strategy and execution as you move along the stages of the company lifecycle; from development / start-up to establishment / growth.
In more than 13 years with Planet Payment, I was fortunate enough to participate in the Company’s complete lifecycle: first as a pre-commercialized emerging company to one with offices around the world, processing global credit card transactions for some of the largest banks. We first raised capital privately from “friends and family” and through several tiers of professional private equity, then publicly through an IPO admission on the London Stock Exchange’s AIM market leading to a listing on NASDAQ.
According to a recent Startup Genome Report, an estimated 90% of start-ups that fail do so primarily due to self-destruction. It was the founder/CEO’s bad choices or lack of preparedness rather than “bad luck” or market conditions. The challenges of a 1-year-old, 20-person business are completely different than those of a 10-year-old, 200-person company. The former is focused on cash flow planning and survival, the latter on strategic planning and budgeting to achieve coordination and operating control. An awareness of what lifecycle stage a company is in is important in anticipating and responding to challenges.
Stage 1: Existence
This existence stage is before even a company’s startup, when it is still an idea or a concept. I have been asked to evaluate new technology business plans numerous times in my career. Often the underlying technology is truly cool and advantageous, but when you try to determine how it will be commercialized within the industry ecosystem, it no longer looks quite as compelling. Is the business plan viable and relevant? Will you be able to obtain a broad base of customers (beyond pilot clients) and deliver the product or service within an attainable financial foundation (i.e. enough funds to cover the considerable cash demands of the startup phase)? At Planet, we had a core technical functionality around multicurrency credit card processing which was unique and difficult to “reengineer” and were able to attain a significant referenceable pilot client.
Stage 2: Startup
In many ways, the startup phase is the riskiest stage of the lifecycle. Mistakes made at this stage impact the company years down the line. Adaptability is key here, as the “product” will be tweaked based on feedback from early customers. During the early years at Planet, we were continuously raising capital to invest in building out our technology platform while obtaining and satisfying customers and meeting the most basic cash flow needs, such as payroll. The Company signed several strategic contracts with large industry players which brought the credibility and growth prospects to our equity raise “story”, allowing the Company to access its first rounds of professional private equity.
In fact, it is at this point that I got involved with Planet as their investment banker before joining the Company as their CFO, after our first successful raise. It is important to be strategic in raising capital, taking the long-term view. Pursue investors that understand your industry and support your strategic interests. Be judicious in handing out Board seats as they are difficult to remove and often, as professional investors, they may have different interests than management.
Stage 3: Growth and Establishment
In the growth and establishment stage, the business should now be generating a consistent source of income and regularly taking on new customers. Cash flow should start to improve as recurring revenues help to cover ongoing expenses, and profits increase slowly and steadily. Significant opportunities for growth present themselves and management is often faced with exploiting the company’s accomplishments or keeping operations stable and profitable. At Planet, we were presented with a tipping point prospect of expanding into Asia Pacific with Visa.
Our global ambitions required us to “feed the beast” with secondary consideration to the relationship between revenues and expenses. It is a common paradox for technology growth companies: investment/growth versus profitability. As Planet was expanding globally, we made the strategic move to do an IPO on the London Stock Exchange’s AIM market rather than later-stage U.S. private equity, achieving greater valuation, access to additional capital and, most importantly, credibility with foreign banks considering working with us.
Stage 4: Expansion
At the expansion stage, there is an almost routine-like feel to running your business. Staff is in place to handle the areas that senior executives no longer have the time to manage (nor should they be managing), and the business has now firmly established its presence within the industry. This is a pivotal period in the company’s life. To achieve even greater scale, companies consider broadening horizons with expanded offerings and entry into new geographies at the risk of expanding too carelessly.
As Planet moved past its initial growth in Asia Pacific and was starting to move into other geographic regions, the Company also took on investing in “skunkworks” initiatives while the Board was pushing for a U.S. public listing. The organization did continue to grow and list on NASDAQ, but the burden on resources and lack of predictable earnings took its toll with the eventual replacement of our CEO. It is normal to take on new challenges as a company expands, but one must measure the risk and do what’s best to secure the company for all eventualities.
Although not all businesses experience every stage of the company lifecycle, they may see some of the challenges noted above. I have participated as a company executive, and have seen from a banker’s perspective, how management teams work to anticipate what is coming next and prepare themselves to maximize their chance of success. As a company grows and develops, so too do the aims, objectives, priorities, and strategies of the business.
If your company or one of your clients may benefit by our experience and knowledge, or for a complimentary consultation please contact us:
Seth Asofsky (Miami) 516-395-6790 firstname.lastname@example.org
Gary Colbert (Tampa) 941-323-9555 email@example.com
Russell Slappey (Orlando) 407-448-1781 firstname.lastname@example.org
Alma Kadragic (Miami) 954-651-8044 email@example.com