Last Updated Apr 11, 2011 12:23 PM EDT
Back in the early 90s a bankrupt customer almost buried my software company OnTarget. Our accounts took a major hit, our cash flow dried up and I really didn't see how we could pull ourselves out of it. My home was collateral for my business loans. The car I was driving was owned by the company. It felt like a big black hole had just opened up and I was disappearing down it.
We managed to pull through thanks to the incredible support from our suppliers and a willingness, on our part, to change how we did business. Not only did we come out the other side of the crisis a stronger company, but we managed to discover a virtually untapped market in the process. Here's what happened.
The end of the world
OnTarget sold software to local governments and helped insurance companies build up databases of clients. After five or six years we had 13 employees and were beginning to develop some continuity with our clients. That's when one of our major customers went broke.
I remember phoning the customer on a Friday only to be put through to the Official Receiver appointed to oversee the company's bankruptcy. The man asked me my name and after consulting his papers, said: "You're not going to get a penny."
I had already purchased orders from my suppliers and wasn't going to get any of the $200,000 I was owed for the order. That was going to leave a sizable hole in my finances.
The ordeal was a real body blow, and it took a few weeks to get my feet back under me. When I did, I realized I needed to buy some time. I handwrote letters to all my major suppliers and told them, quite simply, that I had no money. I told them what happened and why I couldn't pay them for their services at the moment. Then I gave them my word that if we could pull through, I'd repay every penny I owed.
I really didn't know what the reaction would be, so I was a little surprised when I got a unanimously positive response. All our suppliers -- accounting companies, marketing firms, printers -- wrote back with affirmations of support. They said they understood and even appreciated that I had been up front with them.
They also probably realized that if they tried to recover their assets immediately I'd go bankrupt, too, and they wouldn't have gotten anything in that case.
A new focus
That reprieve not only gave us the time to recoup some of our losses, it also provided an opportunity to reassess what we were doing with this company and how were doing it.
One of my primary concerns going forward was credit management -- in particular, how we managed the credit of our customers. We started by altering our own policies, such as contacting customers before their invoices came due to address any issues before they became problems. While our customer's bankruptcy came as a shock to us, there had been signs of trouble that we hadn't noticed. We'd allowed him to delay his payments for months without asking why. Going forward, we made it a priority to see that our customers paid us on time.
Next, I went looking for some kind of software that would help me make better credit management decisions. I wanted a program that would reduce our risks by recognizing customer warning signs and identifying potentially bad debtors. I also wanted one that provided us with the tools to help our customers pay their invoices on time. I was surprised to discover that I couldn't find anything -- the software literally didn't exist. I had a programming background, so I decided to just write it myself.
If you build it...
As I was building a program to fix our own credit management issues I recognized, given the dearth of options out there, that other companies could benefit from the software, as well. As soon as we put it in place for ourselves, we released it as a product and it became a huge hit.
We quickly realized that we should move our entire business into the credit management marketplace where there was almost a limitless potential for growth compared to our previously local niche. Within two years of our near disaster we had transformed the entire profile of the company.
We've since changed our company name to OnGuard, and we have 10,000 users, 850 customers around the world, offices in Amsterdam, London, New York, Auckland and Sydney and $10.5 million in annual revenue.
Our greatest crisis may have been our luckiest break. If we hadn't lost that customer and been driven to the brink, we probably never would have made the radical change we did. We would still be stuck struggling alongside a host of other local software companies.
A self-professed cricket fanatic, David keeps close tabs on the sport while traveling between OnGuard's international sites, and is confident, that despite a disappointing finish in this year's tournament, England will take the next World Cup title in 2015.
-- As told to Alex Coppola