When your customers’ cash dries up…
With all the turmoil surrounding the collapse of Silicon Valley Bank, the pullback of Venture Capital money and other nail-biting financial moments, how should you deal with customers who suddenly don’t have the money to pay their bills? The very wise Ron Boire offers a perspective.
Wisdom from hard earned experience: There’s never a problem until you have a problem
My partner at Valize, Ron Boire, has a deep well of experience years spent at companies large and small, many of them iconic. In this moment, when an entire generation of young business leaders has never experienced a bank run or seen formidable institutions abruptly shut down by financial regulators, I thought a story he tells of advice he gave to a young entrepreneur was profound. You don’t learn this stuff in books!
Ron advises leaders, offering guidance based on the kind of experience you can only get by living through it.
So, let’s set the scene. One of the young leaders he’s working with had the great good fortune to set up an executive search business focused on tech placements as Silicon Valley continued to boom, tech firms had no trouble paying for an edge in the war for talent, and being a young person finding other young people roles in those firms was a great position to be in. The good times rolled. The firm could afford to spend on client entertainment, partner trips and a nice office.
Fast forward to March of 2023. Inflation was wreaking havoc on previously solid business plans. Investors were nervously asking company founders about their paths to profitability, rather than digging into their wallets to fund breakneck growth. The war in Ukraine and dislocation of previous assumptions about lean supply chains and global trade were dismantling our world view.
Ron called and said to him, “As interest rates go up, this model of profitability is no longer going to work. I talked to his partners, and his CFO about it. And they were all like, “we kind of know it, and we’re kind of watching it.” But you know,” he continued, “there’s been no crisis. I mean, I remember when I was a kid, there was never a problem until there was a problem.”
But, well, there’s a problem now.
Our entrepreneur felt his firm would be relatively protected from the aftermath of the collapse of Silicon Valley Bank. Their money was safely deposited in a major money-center bank. Their clients had always paid regularly, and they had a good solid pipeline of new business lined up. They had a few invoices out, so their only concern was whether they were going to get paid.
Ron said to him, with his characteristic candor, “Well, I don’t think you have to worry that you’re not going to get paid because you’re not going to get paid.
Moreover, don’t worry, because you are literally the last person they’re going to pay. When money gets tight, who’s on the list of who is going to get paid? I’m going to pay my employees. I’m going to pay my taxes. I might pay the rent, but I’m probably not even going to do that. I’m going to pay the electric bill light bill, and maybe the phone bill. That’s it. And once you’re past that list, you stop paying people. And you hunker down.”
“You don’t have to worry that you’re not going to get paid because you’re not going to get paid.”
He continued, “even once your clients start getting cash back in, they actually don’t need you anymore.
So they have no incentive to pay you next, because they need some service you’re providing or something special. They’re not hiring anybody, so they don’t actually need you. So, you are going to get paid dead last.”
So be human.
Well, this doesn’t sound too cheerful, does it?
Even in this tough situation, Ron offers a great perspective. As he explained to me, “My advice in a situation like this is to be human, to be their friend. And be proactive, call them up and say, Hey, listen, I know you’re in a tough spot. I know you can’t pay me. Don’t worry about it. When you get the money, pay me.
For now, I’d like to help you in any way I can. Is there something I can do for you? The message you’re sending them is, I’m a partner when you’re in good times, and I’m a partner in bad times. That’s enormously powerful because you know they have people calling them right now, screaming at them for money. You don’t want to be that guy.”
A story from 9/11 and Sony
As they chatted, Ron continued, “let me tell you a story. When 911 happened, I was at Sony, and I was the President of the Sales organization at that time. We had a very large customer on Wall Street. It was called J&R Music, and J&R sold a huge amount of electronics which they bought from us to people who worked in the World Trade Center area and Wall Street. The company was run by a woman named Michelle Friedman, who was powerful, and very accomplished. I had a relationship with her because I used to run the New York sales office so knew her, but she was not always the easiest person to deal with. But she dealt with me, and we got along because we were both really straight shooters.
Image source: https://www.archives.nyc/blog/2018/1/11/farewell-to-tweed
So, 9/11 happens. Her building is literally right at the base of New York City Hall, on Park Row. The towers come down, about half a block a block away. All of her customers were basically from that area and their premises have been utterly destroyed. So that was one problem. The second problem is when the towers came down, the New York Fire Department came into her building. They cleared off all the counters and threw all the computers and tech out the back door, in order to make triage space because they were expecting, hundreds or maybe 1000s of casualties that needed to be triaged.
The saddest part of that story is not that her business was severely damaged or destroyed. It’s that they never triaged a single person.
It’s a horrible, horrible situation. So now here she is. She has a business that’s almost entirely dependent on Wall Street. And she’s staring at being out of business.
So, I called her up and I said, “you know, don’t worry about it” She owed us millions of dollars. I said, “don’t worry about what you owe us. We’re going to just consider that a loan. And you’ll pay when you can pay it. How can we help? There was very little we could do at that time because nobody knew anything.”
But, “after a few weeks, she got her business started again. We gave her a new credit line for shipping our product and kept that other bill off to the side.”
“She paid off her debt to us over time. And she, from that moment forward, was one of the most loyal customers we ever had. I told our young entrepreneur to do the same thing. Get all of your team on the phone. Tell him to stop going after invoices. Stop going after sales. The phone call you want them making right now is, “Hi. How can I help?”
A story I thought should be shared
Our Valize team is spending this week enjoying being all together in person (a rare pleasure!). When Ron shared this story with us, I thought it was worth sharing with all of you.
How can we help?