Tuesday, January 27, 2009

Update to the Position2 Team

In the spirit of openness, I wanted to share an email I sent to the Position2 team. It's been edited a little to protect confidentiality and add context. Given the market uncertainty, I wanted my team to understand my thoughts. We have realigned our focus and have made cuts. And the same time we are adding business and people. Sound confusing? Well, read on.

Position2 Team,
Many of you heard from your manager about the recent changes at Position2. I wanted to update you on what is occurring in the company, especially in terms of what we see in the market.

The Market Storm
Everywhere you read, everywhere you look, the news is ugly. Banks in trouble, companies laying off or slashing payrolls, consumers not buying, foreclosures up, venerable auto and retail firms at risk of bankruptcy or liquidation. It does not matter if it’s in the US, Europe, India, Russia or the Bahamas – it’s everywhere. The global economy has not diversified risks. It has only magnified them. It used to be fun every morning to read the Wall Street Journal. Now, I read a book about something else as every news article is a rehash the same thing. We discussed this when I was in Bangalore. It has definitely impacted Silicon Valley. Companies are not getting funded. Many are just being cut off by their backers. You can go to my blog to read about a personal saga of an entrepreneur I know well. There are storms and there are storms. This one is one of those once every century ones.

Impact on Us
Our market is impacted. Online ad spend has been projected to slow its growth, however the reality has been quite different. Even those who have successful campaigns have cut back (with some notable exceptions). The constant stream of bad news has caused businesses to pause and cut back in one of the easiest (though not smartest) places – marketing and vendors. We have been in various talks with firms looking to break their arrangement with us. Luckily, our agreements were well written enough and performance strong enough to provide a strong defense and favorable resolution. Many of the deals we were going after either slowed or stopped decision-making altogether. We are not out of the woods completely, but it is stabilizing. We do have a strong client base that is mixed across a variety of industries, because of our performance, there are growth opportunities with them especially as the market stabilizes.

Aligning our Cost Base
In this market with limited funding opportunities and uncertainties in the market, we needed to be solidly in cash flow positive. To get there we have instituted an x% pay cut with a new bonus program. In this program, for every cash flow positive quarter our team will receive y% of the net positive cash flow in a proportionate manner. This will be paid on a quarterly basis and replaces all other bonus programs. While many companies have simply cut at greater levels, we believe that this will allow us the ability to work together to not only earn back our pay, but exceed it.

We have also realigned our sales and marketing effort. The team is a little leaner, but more effective. Our team has identified and are pursuing a number of significant opportunities.

These moves keep us solidly in cash flow positive territory. This is a shift from our previous focus on faster growth through direct clients. That does not mean will not hire or spend money – we definitely will. We need certain hires to support client or company development initiatives. We need to improve our infrastructure to increase productivity and communications internally and externally. It simply means we all need to be careful about how we spend our money and aligns all of our collective interests.

Future Outlook – We Will Flourish
Because of our cost base and our diversification, we have excellent prospects for the future. With a strong investor in Accel, we are getting excellent leads. We continue to market across our network. Given our search and social media marketing experience and company infrastructure, we are focusing more strongly towards agencies. In the past, many of the agencies we worked with too small and unsophisticated about this space. Now, we are reaching larger players who know this space, have hiring freezes and margin pressure. Recently we closed major internet brand for search marketing services. We also closed on a major project with a significant search marketing agency. We are also engaged with other large agency players. Online advertising and marketing services is a relationship-based sale. You cannot simply advertise reputation, features and prices as in traditional marketing, people need to know you. It’s our job to enhance that through programs that help people understand who we are and how we think. That’s where Position2 marketing comes in – we all need to be engaged in it: blogging, social networking, speaking at conferences, participating in industry forums, etc. One person can’t do it all, we all have to help.

The best news now is the US has a President who has broad support the world. The best thing Obama can do is instill confidence in the future, so that decisions can finally be made. There are some signs of a turn in a stabilizing stock market, increases in home sales and a large worldwide stimulus package. I personally have raised money during the 2000 tech bust and have seen recessions where US unemployment, interest rates and inflation were at double digits - even worse than today. Just as oil prices could not go up linearly forever, nor will people and businesses continue to withhold purchasing and stop innovation. Great companies were started in previous downturns – GE, Cisco, Microsoft, HP and Disney. There's no reason to believe that this recession will be different

We certainly can flourish – and we will.

Go Position2!


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