The year our hard work started working
In article 18 for The Consulting Balance, Mark shares how years of hard work and perseverance finally started to show real financial growth.
You need a very thick skin to be a CEO. If your confidence comes from the validation of your board then you are in for a rough ride. Results are what matters to a board. If your revenue and margin are increasing, you're a genius. If your revenue is decreasing, you're an idiot. There isn’t a lot of middle ground.
In my career, I’ve been a genius and an idiot. For most of 2017, I was an idiot. In the eyes of the board, Nexient was not performing. We were struggling to acquire new clients, grow revenue with current ones, or just plain hold onto them at all.
While all that was going on, there was a heap of non-billable work happening too. I was working with the team to figure out how we could differentiate the company and how we could build a go-to-market team that would be able to deliver on our positioning. Although beneficial in the long run, this work was also putting stress on revenue. I was lucky that my board had enough faith in me to stick it out long enough for some of the initiatives to start working.
At the beginning of 2018 things finally started to turn around, at least from an execution standpoint. The first quarter of 2018 was the moment when we had actual results that showed we were on the right path.
Revising financial reporting
I’d like to make a quick aside on an idiosyncrasy of services companies. They often have monthly financial reporting. When I first started with Nexient, we reported our financials every month. This is a great practice for early stage companies, as things change quickly. However I had a problem with this and wanted to make some adjustments. Since our revenue was based purely on billable hours, the number of working days in a month would cause huge swings in our reporting - anything from 18 or 19 in November or December (depending how the holidays and weekends fell) to 23 in most other months. If you have a 23-day October and an 18-day November, your revenue is likely to drop by approximately 22% month over month with the same number of billable people. I found myself having numerous conversations with the board on why revenue was fluctuating so much and based on this, convinced everyone to move to a quarterly view of our revenue as our gold standard.
I kept a graph which showed the total revenue for each quarter over a number of years. This became the measuring stick that I looked to the most to see how we were doing.
Q3 of 2016 had been the high-water mark before things started to fall apart. We hit bottom in Q2 of 2017. You have to look very closely at the graph to see that Q3 2017 was larger than Q2 2017. Q4 of 2017 was starting to be convincing, especially since November and December were always difficult with fewer work days. I still remember a board member commenting to me after the Q4 numbers, “Do you really think this is a trend, or are we just getting slight improvements?” This skepticism in the face of my own positivity was a bit of a downer, but as I said, CEOs need to have a thick skin.
The tide had truly turned
By the time we had full results for Q1 2018, we were already part way through Q2 and had a pretty good sense for where that would land. There were a number of things that helped our story on execution here:
Q1 2018 was a significant jump
It was also a quarter that was finally larger than our previous best quarter (Q3 2016)
We could see that Q2 was going to be significantly better once again
These results allowed me to shift the narrative from “Trust me - repositioning the company and building the right go-to-market team will pull us out of this mess” to “I told you - the things we’re doing are working.”
We were still working on improving many areas of the business and had a long way to go to build the differentiated, high-growth company we were looking for, but having tangible results really helped to bring more energy to the efforts. Some of the things we were working on when we got to these results included:
holding strategy sessions on how to accelerate revenue
adopting a new sales methodology (Challenger)
launching a new CRM (HubSpot)
building out a methodology to scale our delivery with repeatable high quality
The faith the board previously had in me had grown into firm trust, and that gave us scope to keep pushing the work we couldn’t bill.
There was a palpable sense of excitement (with equal measures of relief) in the air at Nexient in the first half of 2018. It was well deserved given the hard work and perseverance that had got us to this point but it was early days and we’d need to keep pushing to retain our winning streak.
Financial results rule. When running a company, there are hundreds of things you can look at and work on to get to the long term goals you have. No matter what those are, you have to deliver some financial victories along the way to demonstrate that the model you are building is really working. The amount of energy that Q1 and Q2 of 2018 injected into the business was game-changing.
Growing revenue solves a lot of problems. In the long run, you need to worry about gross margin and operating margin to really have a healthy services company. One of the best ways to improve all of your key statistics is to grow revenue quickly. For Nexient, this allowed us to dramatically lower the number of staff on the bench, create promotion opportunities for many people, and spread our fixed costs across a larger base of total revenue.
You have to keep pushing even when you have short-term victories. It’s easy to see short-term victories like we had and think you can rest a bit. The reality is that you can’t. You have to keep looking a few quarters to a few years down the road and work on the things that are going to deliver great quarters in the future.
