One of the nicer coffee bars in Montreal is at the newly renovated headquarters of Groupe GSoft Inc., a business software maker. There’s also a basketball court, skateboard ramp and plenty of comfy chairs tucked into quiet corners. The place was bright and buzzy when I visited in December and its expansion was nearly complete, a testament to the 14-year-old company’s status as an unsung hero of the local technology scene.
Simon De Beane, one of three founders and the chief executive, was feeling a bit daunted by all the changes: he was no longer a kid from Saint-Lazare, Que., running a startup from his apartment, but the leader of a company of about 300 people on a trajectory to get much bigger. “It keeps me awake at night,” the 34-year-old said in an interview a couple of weeks before Christmas. “It’s the biggest challenge of my career.”
Christmas 2019, such a long time ago.
The risk/reward dynamics have changed
GSoft’s expensive new headquarters has been dark since March 16. De Beane heeded the Quebec government’s early urgings that all non-essential businesses should close to help slow the spread of the coronavirus, beating the compulsory order by about a week. It was the right move. Quebec had recorded more than 5,500 cases of COVID-19 as of April 2, by far the most in the country.
Now, like so many other executives, De Beane’s days revolve around multiple video conferences as he tries to direct a workforce that is spread out across the city, rather than congregated around the in-house barista.
But he didn’t sound any more daunted by the future when I talked to him by telephone on March 31. Top of mind was the extra time he was spending with his newborn. He has also discovered that working remotely can be good for productivity.
“Meetings that used to take two hours now take one hour. Why? Because you are on video conference and not wasting time on useless stuff,” De Beane said. “There is going to be some added value to our culture because of the crisis.”
Calm in the face of this epic catastrophe isn’t what we tend to expect from a company leader. But De Beane and GSoft were ready for something like this, at least financially. “We’re not one payday away from bankruptcy,” he had said in December, when there was talk that the trade wars could end in a recession. “We prepare for the worst.”
De Beane describes his business philosophy as the “Kraft Dinner approach.” In the early days, he and his partners paid themselves enough to cover food and rent; everything else went into the company or the bank. They vowed to grow no faster than profits would allow. The company isn’t getting much out of that fancy renovation at the moment, but at least he isn’t worried about coming up with the money to pay a slew of invoices.
“We have a lot of liquidity in the company,” De Beane said this week. “We were not in panic mode when everything changed in the last two or three weeks and we’re able to analyze a little bit more and understand that we could go through the crisis and get out of it stronger.”
GSoft is a throwback and, therefore, somewhat unique among its peers.
Unlike vintage sneakers, nostalgic business strategies where sales determine growth haven’t resonated with the leaders of companies born into the move-fast-and-break-things era of global commerce. Market domination was the goal, and spending other people’s money was the way to achieve it.
The sheer audacity of some of these businesses … looks way less viable in a world where you are worried about an L-shaped recovery
Tony Frost of Ivey Business School
In GSoft’s hometown, Element AI, an artificial-intelligence startup, accumulated more than $100 million in 2017 before it even had a solid business plan. Lightspeed POS Inc., which makes software that helps smaller businesses manage payments and inventory, raised $179 million in an initial public offering last year, the largest IPO by a Canadian tech firm in nearly a decade, even though it loses money.
It goes without saying that companies such as Element and Lightspeed would struggle to raise that kind of cash today. The question is whether it will be possible to do so in the post-crisis future.
Investors will continue to bet on potential, but surely they will put more weight on the fragility that comes with debt-financed growth. Also, the market rout means investors can now grab profitable, dividend-paying companies such as BCE Inc. at a discount, rather than having to roll the dice on a startup to earn a decent return. The risk/reward dynamics have changed.
Bottom line: the Kraft Dinner approach is about to make a comeback.
“The sheer audacity of some of these businesses that were started surely looks way less viable in a world where you are worried about an L-shaped recovery, or a slow escalator back up,” said Tony Frost, an associate professor of international business at Western University’s Ivey Business School in London, Ont. “I think there is going to be a shakeout.”
This week, while so many companies were trying to figure out if they qualify for the federal government’s wage subsidy program, or haggling with their banks over an emergency loan, De Beane and his leadership team were working on a strategy to take advantage of the surge in demand for software that facilitates remote management. That’s GSoft’s wheelhouse. One of its products allows managers to gauge morale and engagement, while another helps information-technology departments sync with the cloud.
“A lot of things are going to change,” De Beane said. “There are a lot of businesses that probably will go bankrupt. The least that we can do now is make sure that GSoft stays strong and we get out of it. Quebec and Canada need companies that will get out of this crisis as strong as they were before.”