Risky Business – That’s Business for everyone including the Branham300 companies
Written by Deborah Therien
A look back
Over the course of 2001 and continuing into 2002, the Branham300 companies have had to steer through some tough times. Despite this challenging environment, most categories in this year’s listing were able to demonstrate overall revenue gains, indicating that the firms are working hard in the face of adversity. However, one of the enduring questions to come out of this technology recession is “Why?” Technology is a productivity-enabling tool that should help end-users combat the challenges of a tough economic environment. Consequently, one might expect it to be more resilient than other sectors of the economy.
Most investors and business leaders undoubtedly agree that the dot.com bust is no surprise … at least not in hindsight. Irrationality ruled the market. The economic impact of the bursting bubble has had ramifications that pervade the entire economy and in particular the IT market. In particular, it has forced investors to re-examine how they deploy investment capital and entrepreneurs how they acquire it.
During the boom time, a surprising number of normally level headed investors traded their tried and true investment and risk assessment practices in hope of achieving the meteoric returns of the early dot.com successes (at least from an investment perspective), like eToys.com, Pets.com, Dr.Koop.com, Boo.com, 360networks, Itemus (NAME.com), Onvia.com and Egghead.com. The causes of the dot.com era and its subsequent bust have been enumerated, explained, analyzed and justified. Unfortunately the results don’t change.
The events leading up to the crisis
Venture capitalists and other investors, who have been burned by their irrational investments of the past, now hold their cash for ransom. Some believe the major cause for the bust can be attributed to the eager entrepreneurs who were given dollars upon dollars to bring their technology into a workable (and more importantly marketable) product or service. Many point the finger to these “upstarts” as being inexperienced and ignorant of sound risk assessment and contingency planning. But in reality, the “techies” never professed to be business gurus, but rather looked to the investors to mentor and caution them. But this did not happen. In fact, they were encouraged to do quite the opposite. Without unrealistic growth models built into their projections – investors would not entertain funding them. And so the Games began. Projections reflected:
- A total disregard for the bottom line with a complete focus on revenue growth.
- Dazzling revenue growths – revenues would grow exponentially from a mere $100,000 to tens to hundreds of millions within 6 to 12 months
- Economic growth rates (local, regional, national and global) always increased and never stabilized.
- Labour costs grew at a structured level but rarely allowed for the distribution of profits in any material way.
- Economies of scale used in the projections reflected unreasonable savings.
- Few considered the difficulty of maintaining a skilled work force or finding the work force to assist achieve the phenomenal growth rates.
- In cases where mergers or acquisitions were used to acquire the skilled workforce or new technology, few understood the impact different corporate cultures could have on the success/failure of the transaction and therefore did not provide for the costs the post-alliance would have.
- Risk assessments were similar in most business plans. Little regard to the specifics of the company itself were considered but simply an assessment that basically stated that all businesses faced the same risks and accordingly it was not a real consideration.
And there was much more. Compensation models for Executives as well as employees included significant options, this along with the strong encouragement of the Venture Capitalists, prompted companies to go public long before they should have. Unfortunately, less aggressive forecasts founded in logic and reason were often dismissed as too conservative and not worthy of investment, given the alternatives. Yet the investment community now looks to the IT industry to redeem itself, while in reality it is not for them to seek redemption but rather the investors.
Risk and Business
Risk is nothing more than a calculated amount of the impact a potential negative event could have on projected returns. The most significant element being the level of risk one is ready to assume. It is imperative that we start remembering what business is all about. Business is a matter of inputs and outputs and RISK. The goal is to ensure that the level of outputs outweighs the inputs given the level of risk. The higher the risk the larger the Outputs should outweigh the inputs. Certainly we should learn from our party of yesteryear, get through the hangover and move forward.
Risk is an inherent part of business. There are no risk free returns[1] or risk free assets or risk free investments or even risk free decisions. However, the dual impacts of the dot.com era and its subsequent bust have slowed expected growth and recovery. During the dot.com era investors threw caution to the wind, along with their money, and failed to acknowledge there was any risk. And with the bust came the ebb of the easy money. The flow ended! Confidence fell.
Yet despite this, many companies have weathered the storm. The Branham300 reflects 8% of Canadian companies with growth rates of over 100% and 70% posted growth rates greater than 5%. Maybe not the spectacular returns of the past but nonetheless satisfactory in traditional economic measures. These companies have made decisions that enabled this growth. But these decisions can’t stop, the assumption of risk must continue – without risks there are no returns. Decisions must aim to achieve growth as well as a positive bottom line.
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Branham 300 - Phenomenal growth rates despite the fear of risk |
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Company |
% Growth |
2001 Revenues(’000) |
Website |
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Belzberg Technologies |
100.80% |
$24,000 |
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Cyberteks Design |
169.23% |
$350 |
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Delano Technology Corporation |
220.11% |
$30,375 |
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Fincentric Corporation |
162.02% |
$74,500 |
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Fuel Industries Inc. |
585.52% |
$1,515 |
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imason.com inc. |
339.66% |
$1,020 |
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Infotech Canada Inc |
110.00% |
$2,100 |
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Infowave Software Inc. |
135.29% |
$5,400 |
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Intrinsyc Software Inc. |
267.00% |
$10,940 |
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MediaGrif Interactive Technologies |
472.50% |
$68,700 |
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Pictorius Incorporated |
172.00% |
$1,809 |
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Radiant Communications Inc. |
317.88% |
$8,015 |
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Raymark Xpert Business Systems |
227.87% |
$20,000 |
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Research in Motion Limited |
163.39% |
$343,056 |
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Storage Alliance Inc. |
800.00% |
$900 |
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SureFire E-Commerce Inc. |
302.59% |
$77,889 |
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Unexia Interactive Inc. |
1400.00% |
$285 |
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WebHancer Corp. |
150.00% |
$250 |
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[1] Many would define a risk free investment as the 3-month Treasury bill but it is virtually risk free not entirely without risk.
Conclusion
Today more and more individuals revel in the practice of extreme sports - where there are considerable risks of injury. Yet the risks/fear do not prevent individuals from following their dreams – they assess the risk, use the right equipment, practice and learn from their mistakes. Despite some tough lessons learned, companies should jump aboard the Extreme bandwagon.
Tech Now
Every Sunday, as part of its 6pm EST newscast, CJOH News airs its TECH NOW technology segment that features a look at the technology industry and how technolgy influences our lives and shapes the way we work, play and learn.
Wayne Gudbranson, Branham Group's President and CEO makes a regular appearance as an industry analyst. Watch the latest interview.
- January 17, 2010
- November 15, 2009
- August 2, 2009
- June 7, 2009
- April 12, 2009
- March 1, 2009
- May 11, 2008
- November 25, 2007
- September 2, 2007
- May 6, 2007
- March 11, 2007
- November 19, 2006
- September 24, 2006
- July 30, 2006
- April 9, 2006
- February 12, 2006
- December 18, 2005
- August 21, 2005
- July 3, 2005
- May 8, 2005
You will need RealPlayer to view these interviews. It can be downloaded free from www.real.com
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