Lessons from down-turns past

Bijan Sanii remembers the very moment he felt the dot-com bubble burst.

It was the summer of 1999. Sanii, currently CEO of Burnaby’s Inetco Systems, was COO of Infowave Software at the time. Infowave, a Vancouver company that provided wireless data software for enterprise customers, was riding the same wave as so many other technology companies. The company had buzz, a high-powered board, and a listing on the Toronto Stock Exchange.

Sanii was on stage at a live panel televised by ROBTv. He had mentioned a couple of potential customers and partners in his remarks — nothing concrete; no deals or contracts, just discussions — and during the break, he saw that his phone was going off. It was his CFO.

“He was leaving messages telling me to get off the stage. In 30 minutes, our stock had gone from the low forties to over seventy. During the course of that broadcast, we were suddenly valued at more than a billion dollars,” Sanii says, amazed even now when recounting the story.

Sanii and Infowave were experiencing their own version of “irrational exuberance”, the famous term then-U.S. Fed Chairman Alan Greenspan used to describe the overheated economy and crazy valuations in the tech sector.

Sanii’s instincts at the time were to take the stock market windfall and build up a war chest to ride out the storm. His board had other ideas. Six months after the ROBTv event, Sanii stepped down, and after a few years of limping along, Infowave joined a long list of dot-com casualties and was gone.

Sanii has been a fixture in the Vancouver tech scene for almost 40 years. In addition to Inetco and Infowave, he was Executive Chair of video streaming compression technology company UB Video that saw a $40 million exit in the 2000s.

He and his generation of CEOs — people who knew a world before the internet — have seen their share of ups and downs during the course of their careers. Today’s recent cooling in the tech sector fuelled by higher interest rates, inflation, and bank crises; too much money in the economy; and the aftershocks of a global pandemic have combined to create the first sight of traffic on the tech road in some time. For the current generation of founders and leaders who have only known good times, this may be their first experience dealing with adversity.

But as Sanii and others have come to know, what may appear to be the end of the road, isn’t. They’re really just speed bumps — and good leaders are the ones who apply discipline to keep moving forward to stay in the fight, and come out the other side.

Sanii has been at the helm of Inetco Systems for 16 years. The company serves financial institutions and payments companies with AI-powered software to stop fraud and cyber security attacks at the transaction level, in real-time, with customers around the world. The company recently introduced an AI-led solution that helps financial institutions increase their resilience to cyber threats and financial crimes.

“We are really lucky in that even as the financial sector deals with inflation and recession talk, cybersecurity and fraud concerns aren’t going away,” Sanii says. “They don’t have a choice not to invest against attacks. So our pipeline is strong, buyers are buying, [and] we are closing deals and closing them more quickly.”

Given the strength of the market segment, Sanii sees the current slowdown as a far cry from the dot-com crash or the chill following the 2008 financial crisis. Still, there is heartburn out there — Inetco has some of its own as it balances opportunity costs with revenue and funding realities — and Sanii says leaders are being called upon to make tough decisions depending on their stage and situation.

“The worst thing people can do is take no action,” Sanii says. “But what you do depends on where your market is at, where your customers are at, and where your investors are at.”

He says that companies that have raised money on an idea and are pre-revenue might be smart to go into “hibernation mode” to ride out the storm, preserving cash and working on the product how and where they can, building muscle to come out strong when the market rebounds. Others that may be in-market but lacking VC money or robust revenues need to be smart with their cash, cutting back on hiring, reducing rent footprints, and eliminating discretionary spending.

“There’s no question it’s like threading a needle right now,” he says.

Bob Park was CEO of FinCAD and had to thread the needle many times in his 30-year run. The Surrey-based company provided sophisticated risk and analytics tools to financial institutions to help them price and value financial products known as derivatives. The company was sold in January 2022 for USD $32.7 million.

Now retired, Park recalls that in the early days, there was very little VC financial support for Vancouver tech companies. Like others, FinCAD was chronically under-funded, and in the mid ‘90s, the only solution at one time to keep the team and company going was an across-the-board 45 percent pay cut. Coming out of the 2008 financial crisis when sales ground to a halt, the company had to lay off 12 people, which was hard for a smaller company to absorb.

Park said that one of the lessons he learned was to be creative around how and where to raise money without selling equity, especially if the crisis hurting the business isn’t of your own making.

“We knew we had a great product and a great team, and customers who wanted that product, but we were at the point that there was dust in the bank account,” Park says. “So we thought, maybe those customers can help.”

It was 2001. FinCAD was early to the SaaS game and was selling to one of the Big Four accounting firms. The organization was 18 months into a license agreement and Park approached it to pre-pay months 19 through 36.

“They didn’t pay all of that, but they paid a year,” Park says. “They didn’t want us to go out of business because they wanted the service, and that advance payment allowed us to keep doing that.” The accounting firm is still using FinCAD’s tools today, 22 years later.

Former Galvanize CEO and now board director and advisor, Laurie Schultz — who is also currently on the boards of Constellation Software, Riskalyze, UserZoom, and Boast.AI, and is a strategic advisor to Vistara Growth — used a similar pay-up-front strategy while at Galvanize.

When cash became tight during a revenue conversion from a perpetual payment model to subscription, Schultz and her team asked their multi-year customers to prepay, “and miraculously, many of them did,” she says. “Maybe it was because they had extra cash in their budget at year-end, but whatever the reason, we were able to pad our balance sheet with millions of dollars. And [prepayment] is getting a lot of attention on the boards I am sitting on right now.”

The CEOs I spoke with were consistent with one piece of advice for today’s crop of leaders: culture can’t be cut if things get tight. In fact, tough times call for leaning on culture more than ever.

Geof Auchinleck is a serial CEO and current head of Claris Healthcare, a local company focused on healthcare solutions and supports that allow people to age in place longer. His entire career has been in the medical device and health technology space, after launching Neoteric Technology in the late ‘90s, which was sold to Haemonetics in 2009. He has also been a mentor and supporter of startup CEOs for more than 30 years. He founded Claris in 2012.

Auchinleck says companies in good times and bad need to link their success to team culture, transparency, and communication.

“If anything, I have been criticized about being too open about what’s really going on in the company,” he says. “I don’t hide anything from anyone, because I am dealing with highly intelligent, highly motivated people, and they won’t have the wool pulled over their eyes for any length of time.”

Auchinleck says growing the team and culture at Claris has been tested by COVID, but they have managed to do both. He cites a recent example of a new hire from Toronto who asked about the company’s run rate and cash on hand as part of the interview process.

“Rightly so,” Auchinleck says. “And I told him, exactly. I said, ‘Here is the bank balance today.’ It was a totally fair question for somebody betting their career on a company, and there is no reason why I would hide that.”

Bob Park put it this way: “You can’t BS your friends and family, and in a small company with a tight-knit team, that’s what our people were — family.” He says FinCAD had many long-term employees who stuck with the firm through pay-cuts and layoffs because of the culture put in place based on openness and honesty.

“The only way I know [how to] operate is to be honest,” Park says. “If people sense they know what you know, that you’re telling them everything you can about where the business is at, they will pay back that trust.”

Schultz says Galvanize was relentless in its approach to culture, and like FinCAD, the leaders placed a focus on being as transparent as possible. One tool Schultz says they used that helped in tough times was to have a long-term, three-to-five year rolling plan in place for the business.

“I know some CEOs and CFOs don’t like to do long-term forecasts,” Schultz says. “But I find drawing a picture of the future helps keep people inspired [...] If you can make that a part of your culture, being very public with it, when you have to clamp down and do things that are a little less innovative in a time like this, it reminds people of the bigger picture. It can be very effective — and it also helps keep leaders honest.”

For Sanii and Inetco, a culture built on trust and transparency over more than two decades in business is the foundation the company is leaning on to get through the current down-cycle and beyond.

“I share the good, the bad, and the ugly,” Sanii says. “I have an open-door policy and the team feels completely comfortable asking the difficult questions. Our challenge is that because of the hot market segment we’re in, revenues are there and growing, but tighter access to capital means it is harder to service those revenues than it would have been a year ago. Our team knows that, and it means we all need to keep our eye on the ball.”

Because if we know one thing about the local tech sector, current leaders and founders need to put these hard-earned lessons to work now, to be in position to catch the next wave that’s building on the not-too-distant horizon.

Top tips for today’s CEOs from people who know

• Don’t get too far over your skis on valuation. If you are raising money, while tempting, reaching for the highest valuation possible can become too heavy a weight when capital is tight. Be in it for the long haul.

• Know what your job is. A CEO’s job is raising money, meeting payroll, and managing cash flow. Do that job well so your people can do theirs.

• Culture can’t be cut. Be open, honest, and communicate as much as possible about where the company is at. People will pay back that transparency and trust.

• Look to people who like you for help. Customers who like your product and are using your product don’t want you to fail. They can be a source of creative ways to fund the company.

• Be creative with comp. Employee equity is a great way to engage people in the company’s success. It can be used to replace raises and bonuses in times when cash may be tight.

• Cash is king. Rainy day funds aren’t just for your grandma. Laurie Schultz says Galvanize tried to keep the equivalent of three months of operating cash on hand as a hedge against unforeseen risks.