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How We Survived 2009

The CEO of one of my portfolio companies, which I will call “Ajax” (not the real name), wrote this as part of his regular report to the senior team, board, and investors. It’s pretty typical of what it’s been like out there this year, and what CEOs, management teams, and boards did to manage through. To remove confidential information I have put in pseudonyms for companies and indexed revenue numbers to 2008 full year revenue (= $1,000). Beyond a bit of editing for clarity, this is straight from the CEO’s report.

Ajax’ CEO’s summary of the last year:

-  Q3 2008 saw a tremendous ramp in revenue to $300 for the quarter.

-  In Q4 2008 we began to feel the effects of the Global Economic Challenges.

-  We expected that our outlook for 2009 would be affected so we reduced our projections from $2,500 to $1,800.

-  As we ended Q4 2008 (with excellent counseling from our Board) we were encouraged to plan for slower growth due to the economic challenges.

-  We started the year with a plan for $1,300 (and made the appropriate and painful cost reductions). The $1,300 assumed that business from our major 2008 customers would net out level in 2009, and two major new customers (India and Lima) would take us from $1000 to $1300. By the end of Q1 we realized that, instead of reducing their demand by 20% – 30% as expected, some of our top 10 customers had essentially stopped ordering and our new customers expected to ramp up in Q1 and Q2 2009 had delayed their product introductions due to the economy.

-  We reduced our forecast from $1,300 to $1,080.

-  Late in Q3 2009 (August/Sept) we saw the customers from 2008 start to come back with orders (generally asking for expedited shipment), and new customers starting to ramp up.

-  The current revenue review supports this view the market. Of the 2008 top 10, 3 customers (Kilo, Bravo, and Charlie) have taken almost no product in 2009. The good news with all three is that they are still active in the market and we expect they will be successful in 2010 as the market improves. It is very encouraging to see that 3 other customers (Romeo, Delta, and Tango) are seeing traction in the market and are expediting deliveries in Q4.
If Q1 proves to be as strong as initial orders would suggest then we can feel confident the strong traction is sustainable.

Where things stand now

-  2009 bookings Year to Date > $1,160

-  Q1 + Q2 + Q3 Revenue = $660

-  We are currently projecting Revenue of $500-$530 in Q4, hence CY2009 Revenue $1,160 – $1,190 (versus plan of $1,080)

-  Q1 2010 > $300 in Backlog (on October 30)

-  We are currently forecasting ~ $2,000 revenue for 2010.

There were some scary days in the middle of the year and I thank you for your strong support during our dark days. I look forward to celebrating with each of you should things continue on our current path. [End of CEO report.]

This story probably has a happy ending: Ajax got through 2009 without burning up its cash, and it is exiting the year at a run rate of $2,000, which makes a strong 2010 look quite likely.

Hats off to the CEO and the management team! A lot of good work was done here. IMHO, the most important thing Ajax management did was realistic and timely forecasting of where the business was going, which drove aggressive spending reduction. Far too many companies overestimate near term prospects and over-spend to be ready for them (and/or delay spending reduction until the bad news is certain). Then the cash is gone, and the options are ugly. Ajax avoided that trap; it was able to keep the core of its team and its business together and still exploit most of the opportunity as the market came back.