When the Going Get Tough…

I’m posting this blog entry in two ways – video and the usual text blog entry. I thought I’d try this out and see how it goes. Please let me know your thoughts on all this, I’d love to hear from ya. Video is below, followed by the text.

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No doubt life is full of challenges, pain, suffering, obstacles – and all those things define who you really are. It’s not the good times that define you, shape your character, and test you, it’s the hard times, the darkest days.

This recession is doing exactly that to millions of people, if not billions. It’s global, and everyone is being affected – every day citizens, worker bees, small businesses, entrepreneurs, investors – no one is safe from this. And if you are not feeling the pain, than either you’re clueless and not paying attention, or you own a pawn shop.

CitySquares has felt the pain, pretty substantially. It started in the second half of September 2009, when the stock markets took a nosedive in the worst way. Our Q3 pipeline was a hefty one, and we were just on the verge of closing tens of thousands of dollars in new business. When the economy began collapsing, our pipeline just fell out from underneath us. It was pretty ugly. The first thing we noticed was the immediate and extreme reaction that everyone had to the economic downturn, but for us it was the small businesses that really highlighted the severity of things. They reacted as human beings, as real people – they reacted emotionally. So, over the next few weeks and into the holiday season we observed small businesses all across the country go totally radio silent. But what were they doing, aside from freaking out? They were trying to secure credit lines to pay their bills, trying to make payroll, keep their lights on. And all this right when the credit market was seizing up – no money for them. Then the holiday season showed up, and what do you have but small businesses with overstocked stock rooms, shelves loaded up with product that over the course of the weeks preceding the holiday season stayed that way. Now how are these businesses supposed to pay their vendors for those inventory orders? They weren’t able to move any product – and they’re stuck with all this inventory. Now it’s January and the invoices start showing up.

lifeboatThen it really got ugly for them. They started shutting their doors, turning their lights off, letting their employees go. All those businesses, those local merchants, who give so much of themselves to their businesses – closing their doors for the last time. It was painful for us to watch. And we too, felt the pain. Those local merchants, they’re our customers. So we got hurt pretty badly too.

Well, here it is now, July 2009, and the economy still sucks. But small businesses are a resilient bunch, somehow. Lots of them managed to get through that long rough patch, and the fog seems to be clearing up a bit. Although unemployment continues to climb, and consumer spending continues to fall, those small businesses that weren’t really going to make it to begin with seem to have fallen off the tree like dead leaves. Perhaps there was a bit of a shakeout, a necessary one? I’m not a data analyst, nor do I desire to be, but from our standpoint at CitySquares, we’re seeing a bit of a lull here – less businesses shutting their doors, and more businesses just hanging in there, maintaining, and even others that are wising up to online advertising (perhaps the subject for another blog entry).

Well, here’s my point of all this. CitySquares is not unlike small businesses. We are not loaded with cash. Yes, we raised money in 2007 and again in 2008, and sure that included some big name investors like Mark Cuban and Jonathan Kraft. But we’ve never been interested in raising a boat load of cash – for lots of good reasons. And because of that we are learning some really valuable lessons. You might even gather from this that because we’re not swimming in capital that we’re learning some lessons that others may not – what its like to really be lean, mean, and hungry. Just like in 2005 and 2006, when we were bootstrapping our business, we were forced to be really damn smart about how we executed on our strategy, and how we tested business model ideas. Here we are now, three years later, basically going through the same process.

CitySquares had to make some cost reductions, and that included lots of things, from renegotiating with vendors, to trimming the fat off our budget, and the worst part of all, reducing headcount. I can’t tell you the pain that I’ve felt having to do that last part – letting people go. It’s caused me more stress, sleepless nights, and soul searching than perhaps anything else in my professional life. It wasn’t the first time I’ve had to let people go and it won’t be the last. One thing is for sure – it never gets easier.

Today, like the small businesses all across the country, CitySquares is running very lean, and running a tight ship. We learned some very valuable lessons over the past couple of years, and I also learned some valuable lessons.

It’s actually pretty fascinating to see how people react and handle these kinds of stresses. This is when you really see who people really are, beneath the facade. Investors, board members, employees, vendors, partners, friends and enemies – you see their true nature during tough times. I can tell you straight up that there are some folks involved in CitySquares that have demonstrated their strength, their will to persevere, their guts, and those are the people that I want to surround myself with. Then there are others, who have demonstrated their lack of heart, passion, wisdom, their lack of leadership. Those are the people that I would prefer to be in the other lifeboat. Those people really scare me, those are the people that cause the plane to go down, the ones that will press the self-destruct button.

But perhaps most intriguing to me is how stressful times can inspire people to do great things, and with ease and control. In times like these you not only witness the strength in strong people, but the ability to dust off and not just get back in the race, but run to the front of the pack. Human beings are really damn good at surviving.

When people say, “hey ya know, it can’t get much worse that this right!” I always find myself responding quite quickly in saying, “Are you kidding me? Of course it can. It can get a lot worse!” And that’s not a way of suggesting that – oh no we need to head for the hills! Rather, it’s a way of saying – look, things can always get worse. You don’t know the bottom until after you’ve been there. So just prepare for the worst, get ready for it, but meanwhile work hard to make things better. You can always fall down another rung on the ladder. And ya know, in my personal experience, the ladder is pretty much bottomless. The higher you climb, the harder you fall. The idea is that hopefully you only fall a couple rungs, and not the whole damn way down.

Alright, well I’m speaking in tongue again. But I think I’ve made my point, but just in case I’ll sum it up this way…

Entrepreneurs: Things can always get worse. And rest assured that things will get worse. Maybe not today, maybe not tomorrow, but some day, things will get worse. Don’t ever think that you’re insulated somehow. That’ll be your downfall. Instead of looking down and kicking the dirt, or crawling around your cave looking for a better source of fire, get outside the cave and listen to the wind – watch the tides – look at what the animals are doing – look at the horizon – the signs are all around you. Go with the tide, go with the wind, go where the horizon is sunniest. Follow the momentum that is around you.

For CitySquares, that means we’re getting back to some basic concepts and focusing a whole lot less on complexity, and entirely on core value. We’re done listening to the weak ones, the ones who’ve never really been there or done that. We’re watching the horizon, listening to the wind, and steering our boat to go with the tides.

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Getting it Done

This week ADP stated that 693,000 jobs had been lost in the month of December, and the U.S. Department of Labor stated this morning that unemployment has reached 7.2%, a 15-year high. Those are some gigantic numbers – terrifying actually. And the Fed says it’s only going to get worse this quarter, and potentially longer. Is it any surprise? Americans have been spending spending spending for years now, piling up debt, and living their lives on a credit score. Is it because of deregulation? Who knows. The fact of the matter now is that we’re now paying dearly for this recklessness in the form of job losses, bankruptcies, foreclosures, homelessness, and much more to come.

Everyone needs to smarten up, fast. Individuals, companies, no one is excluded fro this. If you weren’t aware of this a few months ago, in late Q3, you better damn well wake up! I was shocked the other day to learn that a friend of mine is actually quite clueless about all this. He’s a bit insulated from it where he lives and in his line of work, but no one is really insulated from this. My wife works at Harvard University, which recently saw its endowment cut substantially, losing 8% or $12B. For the first time in a long time, people are losing their jobs at Harvard, seeing their pay cut, seeing bonuses and scheduled raises off the schedule. Harvard, one of the most stable employers in Massachusetts, is having these kinds of problems. Again – no one is insulated.

This applies to startups too, of course. In fact, I’d say it hits us harder and faster than most other businesses. And that brings me to my point. CitySquares has been hit by all this. Sales are down as small businesses were reacting to the news in September and October, and as they refocused their energies and also smartened up. Sales are down, cash flow is down, some of our customers have gone under, some have been unable to pay their bills. Nevertheless, we’re seeing our way through this. We have an amazing tribe here at CitySquares – some extremely dedicated and passionate people. These qualities were demonstrated this week when I asked everyone to take a pay cut. The result? Some people took bigger pay cuts than they were asked to! And another thing – everyone stayed. Attitudes are great, everyone is as committed as ever. It’s just amazing to me.

I learned so much this week, as a CEO and as a Founder. I learned about employee psychology, I learned about my own abilities as a leader, as a CEO, as a founder. I learned even more about buy-in, about the difference between a decision and a choice.

So, CitySquares underwent pay cuts this week and I can honestly say that on this blog with pride, and with my head held high. Because I know that our team is prepared to do what it takes to weather this storm. Because they understand that paycuts for everyone means no one gets let go, everyone stays. And this tribe is aware of the same goal we’ve had for the past two years – the goal that’s now within 5-6 months from happening – the goal of cash flow positivity. The only way we can make that happen is if everybody here is on the same page, and that has not changed. Everyone here must work towards the same goal! Cash flow breakeven, in this market? In this economy? Outstanding! Show me a business that’s within 12 months of cash flow positivity, and I’ll show you a business that gets it. But show me a business that’s not making changes, not making the necessary cost reductions, not doing everything to ramp revenues and I’ll show you a business that’s in a lot of trouble.

Another thing, we wouldn’t even be here talking about this right, nor ever even arrived at this moment in time, if it weren’t for our investors, our angel investors from eCoast Angel Network and other outside investors like Jonathan Kraft, Mark Cuban, even my own father, among several others. We’re truly fortunate to have such fantastic individuals behind this company. Angel investors are special and its easy to forget how important they are to the economy, to the capital systems, and to the world of entrepreneurship. Angels make it happen.

So, there you have it folks. The truth as bare as it comes! And that’s what my blog entry from earlier this week was about – the difference between decisions and choices. Decisions I had to make, and choices that I had to give to the staff. There were difficult, very difficult, decisions that I had to make, along with our board of directors. These decisions lead to other decisions, and choices, for the tribe – and this week they all chose to help each other, to make the necessary personal investment, to protect each other.

Monday was one of the hardest days I’ve ever had at CitySquares. Today is one my proudest.