Path to Profit: Exec Playbook (Pt 2)
March 3, 2023 by Chris Erwin
Introduction
Today we continue with part 2 of our 2023 Exec Playbook. I explain how to get on a path to profit in a market (1) with material revenue headwinds, and (2) where capital has dried up. Part 1, which gives a data-based overview of US market, and how “the rich will get richer”, can be read here.
Chris, Founder of RockWater
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2023 EXEC PLAYBOOK: Path to Profit
“Back to basics.”
This mantra is critical for every media x commerce business that doesn’t have strong financial performance, nor access to liquidity.
It means getting back to business fundamentals; build upon your core strengths, remove distractions, grow revenue, and cut costs.
We break down revenue growth and cost cutting below. Both are guided by laser focus on your competitive advantage.
2023 Path to Profit: Grow revenue
- Go from reactive, to proactive. There was a lack of sales urgency over the past few years. Now, sales and BD teams need to go on aggressive offense. And be held accountable. Show process improvement, and deliver results, or move on. Revenue roles carry a lot of responsibility, and are not for everyone. But the right hires are force multipliers, love the chase, and love solving client problems. Reactive-oriented revenue teams who relied on inbound leads, or buzz from large early tentpole clients, don’t cut it anymore. I’ve heard from multiple investors that this is a key message for their portfolio co’s, even those in mid to large growth stage.
- Get methodical. Sales and BD teams need a measurable plan to move clients down the sales funnel. From defining client criteria and creating outreach hit lists, to updating collateral, refining pricing rate cards, and navigating sales obstacles. And management needs to have the proper resource allocation, earnings incentives, and accountability mechanisms in place to help revenue teams best do their job. We’ve seen a lot of management quick to assign blame to their teams, when the problem was with management who didn’t setup the revenue org for success.
- Follow the $$. Focus your sales efforts on buyers and clients who have approved budgets, or who recently raised growth capital. Learn about growth needs from press headlines, exec podcast interviews, and Crunchbase. Don’t waste time reading about Twitter drama, or aimless scrolling of your LinkedIn feed. Publish on social platforms who pay out consistent revenue share e.g. YouTube. Cull your efforts on platforms who don’t. Or have a clear strategy on how to send and monetize audiences off platform. Be wary of creator funds; often a good ST money-grab, but don’t rely on them. TLDR, focus your time on the highest-impact client targets and revenue streams.
- Launch new revenue lines. Similar ethos to above. Don’t chase unrealistic opportunities. Instead, pursue those that build upon your team’s strengths and existing assets. Have you built a large IP catalog of short-form social content? Then explore packaging it up to launch a FAST channel, like Chefclub’s Pluto channel launch in France, and Pocket.watch launching on Roku. I also think of podcasters making vodcasts to reach new audiences and create more media and integration inventory. Or explore expanding into a new content vertical that targets adjacent fans. Like how LunarX just launched Theorist Fashion, a new content vertical from their recently-acquired Theorist Media. Optimize time-to-market and revenue potential. Instead of building your own game app or designing a new commerce line from scratch, just license your IP to a mobile game publisher or existing product line and collect royalties. Less upside, but it’s a faster path to profitability, which is your #1 priority right now.
- Explore new geographies. Fandoms start local, but reach global. Localize your content through dubbing, subtitles, or even re-shooting formats with local talent. New tools have made this a lot easier! Develop new int’l distribution relationships. Explore new business models to reach global audiences (there are many international FAST and XVOD channels!). Explore underserved regions outside North America, like MENA, which has a young, digital-native population, and where the primary language of Arabic is one of the top 5 fastest-growing languages in the world.
- At RockWater, we’re focused on developing relationships with MENA and India-based media companies. One of our new clients from this region is eager to license and localize western IP, as well as extend their owned IP to new audiences in the US.
- Also of note, we also just completed extensive research on South Asian audiences and their content consumption habits in the US. South Asians are actually the fastest-growing immigrant population in the US, they’re massively under-programmed to and under-represented on screen! So we’ve been developing relationships with India-based programmers who seek to reach and engage desi (as well as mainstream) audiences on social, CTV, podcasting, gaming, and more.
- So do your research. Look at your social analytics. Ask your fans. Go on Reddit. You’ll find geo pockets of fans who want more of what you’re putting down. Find a way to reach and delight them, thus planting seed for new revenue opportunities. Take your local playbook, global.
- Invest in talent at good prices. Power is swinging back to hiring managers. The hiring pool for educated, tech-savvy workers grows daily with every new layoff announcement. Recruit great people with ambition, who want to build anew. Compensate them fairly, but at levels that are sustainable. Offer flex work for those disenchanted with return-to-office mandates; a chance to get top talent at below market prices. If your old ranks don’t aggressively rally around the new mission towards rapid profitability, or simply are no longer the right fit, replace and reinvigorate with new human capital. A new workplace energy is needed. That also goes for executive leadership. I think back to Ben Horowitz’s post about Peacetime VS Wartime CEOs. Boards, time to do your jobs and make those tough decisions.
2023 Path to Profit: Cut costs
- Cut non-core team, optimize rest. You may have already done 1 or 2 rounds of cost-cutting. Now, cut deeper. Only must-have employees should remain. That goes for FT and PT. Tom Loverro of IVP has some good takes here. Result is a lean team of high-performers across 3 main functions; those who (1) create the product / customer experience (2) sell it, and (3) maintain financial discipline across org. Remove all nice-to-haves, and duplicative manager-of-manager layers. You need more doers.
- Identify functions that can be outsourced / offshored to VAs on Upwork, or undergrad and MBA interns (we do so much with them!). Instead of hiring a custom website dev team, make do with Webflow or Wix. Use AI to create thumbnails and marketing copy, to develop branded content campaigns (we had a client do this!), to help on data entry / reporting / FP&A by giving you excel formulas, more…net net, get resourceful and creative! Building a business and scaling has gotten VERY inexpensive.
- And if your exec leadership hasn’t yet done a round of no-brainer cost cutting, they may not be fit for the job. Are they not setup to get the right signals about your business and market? Psychological barriers? The board and advisors need to strongly gut-check them, and consider replacement.
- Cut non-core OPEX. SAAS, subscription, and vendor bloat is real. Fix with a zero-based budget exercise. Identify services you NEED to deliver and sell core product / customer experience with your newly-leaned team. Sign-up for, or keep those. Find ways to transition to lower cost service tiers. Ask vendors for discounts, renegotiate what’s due in AP. Get quotes from competitors. Cut everything else. Go line by line on your recent month’s general ledger and cut anything that’s non-core / that you don’t recognize. You’ll find out quickly if you need to reinstate something, no biggie. OPEX bloat is real, and every dollar counts. I guarantee you there are savings in your P&L. I find savings EVERY month at RockWater.
- NOTE: you’ll need to find balance of spending time on finding cost savings VS sales i.e. spending 10 hours to cut $5,000 of costs vs landing a $50,000 client makes no sense. Use your brain and gut.
- Eliminate non-performing biz lines. Businesses were highly opportunistic in recent years. They chased new business lines and revenue models, audience platforms, and partnerships. Made sense, because capital was cheap which made growth bets cheap. Low downside, high upside. That formula is now upside down. Anything that’s non-core to your business, where you don’t have a unique competitive advantage nor are resourced for success, needs to be killed off. Have your teams do a data-based evaluation that’s unbiased. And if they can’t, find an outsider who can. Only by optimizing your core will you have the fastest path to profitability. Revisit opportunistic businesses when markets rebound. Or not…focus is a force multiplier in all markets.
- Remove cultural distractions. Evaluate your “cultural stack”. Are your virtual happy hours, team-building offsites, company merch, free office snacks actually helping or hurting your cause? Maybe they improve workplace cohesion and employee retention. Or, they distract (1) HR teams from high-leverage tasks like recruiting and comp benchmarking (2) sales execs from proactive outreach and earning more commissions, their real motivator (3) product teams from improving consumer experiences and improving purchase conversion. The recent “societal pressures” to improve employee experience was well intentioned, but often misguided in execution. Strike a new balance. Sometimes the “no-culture” culture is welcome by employees who simply want more money in the coffers to keep core team members, more time to build content and product that wins, and freed up time for family and loved ones.
- Re-trade deals. Honoring commitments to partners and customers is good business. But if you’re facing extinction, extreme measures are warranted to preserve cash. Meaning, get ready for some tough conversations. For example, you may have signed an LOI for a large cash commitment to a strategic partner to co-launch a new business line. Or, you’re about to sign final contracts for a fully negotiated and diligence’d acquisition, with multiple advisers who only get paid post closing.
- In these scenarios, most execs feel fully committed, or what we call “pregnant” with the deal or partnership i.e. that they must proceed (keeping deal momentum and doing “lots of work” is actually a sales strategy used by advisers and dealmakers to get deals to what feels like the “point of no return”. It plays on human psychology). But a deal is never done until it’s signed. And even after signing, there are still outs due to the pains and costs of legal enforcement.
- So while tough, know you can still terminate deals and partnerships, or walk-back previous commitments and re-trade terms. Yes, people will be pissed off. But if your financial projections and gut instinct are telling you that the deal no longer makes sense, then do what’s necessary and make the tough decision. The survival of your company, and fulfilling your obligations to your company stakeholders (team, investors, customers) is your #1 priority as company leadership!
- Of note, partners and advisers with a long-term mindset will understand through clenched teeth. They’d rather have you around in the future for future dealmaking, than extracting a pound of flesh that will accelerate your demise. And if they prefer the latter, then better to cut ties now anyway.
- I think of Amazon Music’s move in January to reduce its $10 million dollar deal with Pushkin, as part of a broader company mandate to enact cost savings. Amazon Music was likely not facing an existential crisis so it’s not a perfect comp, but the company realized the market had turned, that cash preservation was priority, and certain partnerships must be revisited.
- I also think of the regional sports networks (RSNs) like Sinclair’s Diamond Sports, which is attempting to renegotiate with their creditors and sports teams, and find a viable path forward. The company can’t afford to honor both its commitments to its creditors and leagues, so something’s gotta give (TANGENT: there may not be a viable path! Case in point, Warner Bros. Discovery has decided to fully exit the RSN business, and is preparing to shutdown AT&T SportsNet).
- Have conviction, be decisive. Do your research, consult with your colleagues and advisors, and lock down a plan. Don’t overthink it. Don’t let great get in the way of good enough. Enact it quickly, stick to it, and go forth with confidence! It won’t be easy, but your new plan will be what you need. Trust your work and planning process. As you collect new company and market data, course correct. Aka “strong convisions, loosely held.”
Conclusion
We’ve helped lead these types of path to profit decisions at past companies we’ve operated. We take those learnings to help RockWater clients navigate the same. Here’s more info on our broad service offerings, and who we work with. Contact us or DM me on LinkedIn if you want to learn more. We love helping leaders be their best.
In part 3 of the 2023 Exec Playbook, I’ll explain how to salvage capital if you have an unlikely path to breakeven or a new fundraise. In part 4, I’ll highlight new pockets of opportunity in media x commerce, and where there is potential for venture returns.
Reminder that Part 1, which gives a data-based overview of US market, and how “the rich will get richer”, can be read here.
Onward!
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If these insights are relevant to projects you’re working on, ping us here. We love talking all things media x commerce!
