STAYING SANE WITH MARKET TURMOIL
We know it’s tough out there, and it may get worse before it gets better. We know that’s not what people want to hear.
A childhood friend of mine is Chief Economist at a major insurance company – I talk to her regularly about the market and economic outlook. I asked her if we are entering a recession or are already in one. Her response: “That isn’t the right question. It’s not a binary trade where recession is bad, and no recession is the green light for risk. We’re going to be in a much lower growth phase, especially in 2023, than many had expected, technical recession or no recession. And that slowdown will have similar characteristics to prior recessions / slowdowns and some very different characterises.” Recessions are like snowflakes, no two are alike.
Patient Money
Believe it or not, we have been through almost two decades of market cycles. In 2008, I was working in-house as Manager of Investor Relations for a small-cap company whose share price went from $13.00 to $3.00. I took the dip very personally, regardless of what I had control over. My CEO and I at the time decided to remain focused. We talked to our investors, we met with the analysts, and we continued to present at some (not all) conferences while everyone else put their heads in the sand. As a result, we weeded out investors who weren’t going to stay with us long term, and gained shareholders with meaningful ownership, particularly on the institutional side – despite being a small company. Those investors went on to make a lot of money when we sold the company to a pension fund for over $1B years later. That was NOT a unicorn situation. It was a well-deserved outcome for patient shareholders who remained by our side as we pivoted and refocused our strategy as the markets dictated.
There are smart investors who will swoop in and make big bets when the markets are bleak – that’s when the real money is made. These aren’t the retail investors and investment advisors we have come to know – I’m referring to the family offices, institutional investors, pension funds, etc. These are the investors who went in and bought our stock in 2008/2009 and stuck around to make a lot of money. Strategic long-term investors who believe in you won’t get angry during a downturn, they will support you.
Here’s an article an investor sent me over the weekend that’s worth a read:
Focus on the Basics
What I can tell you from my activist days is this: if the fundamentals are strong, the right team is in place, the thesis is solid, the strategy is clearly communicated to the market, and a good governance framework is in place, a business will be just fine.
Businesses should solidify their foundations to be ready for when the markets and economic conditions improve. They should focus on building an even stronger company poised for sustainable and profitable growth. To maintain their edge, businesses must stay relevant, top of mind, and be financially prudent. Efficiencies, G&A savings, tightening internal processes and implementing best practices, organic growth, new connections in the investment community, exploring financing options, and special projects like website revamps and ESG integration are appropriate now.
This Might Be the Time for Debt Financing
We know businesses need capital to grow, and this is going to require some creativity. Executing growth objectives will be challenging for the remainder of this year. This needs to be understood and accepted. Every banker on Bay Street is “on hold” right now (we’ve talked to them all!). The investment advisors are tapped out. Now is the time to explore debt instruments and expand your financing relationships. I am meeting with groups to explore financing options for our clients and attending VIP events for family offices and private equity investors on behalf of our clients.
We know businesses receive a lot of pressure from investors, and businesses need to acknowledge them. Caroline and I have more scars than we wish to admit from frustrated investors over the years. That is why irlabs is doubling down. We continue to hire new team members to serve our clients and are signing on new clients who align with our values. There is more work to be done now than ever before.
